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Growth of A Digital First Sale Doctrine – An Assessment of US and Indian Laws

Vasundhara Kamath S, PhD Research Scholar at NALSAR University of Law, Hyderabad

 

With the entire world moving towards digitization of information, the scope and applicability of different principles encompassed within copyright law have come into question. One such principle is that of Copyright Exhaustion, also referred to as the First Sale Doctrine in the US. In the light of the ReDigi case decided in 2012, the possible conflict between the interests of the owner of creative content and the legitimate buyer of such content came to light, thereby calling for a need to reconsider §106 of the US Copyright Act, 1976. Moreover, it is increasingly being realized that content owners are relying on measures that are beyond the scope of Copyright law in order to secure protection for content. The balance that Copyright law aims can be disrupted as a result. 

Although the growth and interpretation of a Digital Exhaustion principle has not been subject to an institutional scrutiny in India yet, it requires serious consideration in the light of growing digitization.

This paper intends to evaluate the need for the presence of a secondary market for creative content and thereby for a Digital Exhaustion principle. It aims to explore the evolution of the First Sale Doctrine in the US and critique how the same has been applied to the digital space. Consequently, it intends to explore how an Indian legal framework can be designed, by learning from the US experience.

  1. INTRODUCTION

Content owners have, ever since the advent of the Internet and since the alleged ‘Napsterisation’ of creative content, condemned the prevalence of illegal sharing fostered by the use of digital technology. With the rise of the computer and the Internet, an increasing number of digital products and services have been copied and distributed most of the time without the authorization of legal owners[i].

However, keeping in light the balance that copyright law aims to foster, the access to creative content to the larger public needs to be looked into more closely. With respect to the same, the prevalence of a secondary market and the possible application of the First Sale Doctrine to digital works needs to be considered.

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The First Sale Doctrine has been an important corner stone of the Copyright law in the United States of America (US). However, due to recent legislative as well as judicial activity, it is facing an existential crisis in the digital age. The possible revival of the Doctrine needs to be considered in order that the true purpose of Copyright law is protected. On the other hand, India too needs to reconsider its approach towards the Exhaustion Principle since the problems faced by the US have a possibility of plaguing the Indian legal context as well. The author has used the terms First Sale Doctrine as well as Exhaustion Principle interchangeably in the paper, although some scholars have stressed on the fact that the former refers to the statutory transformation of the principle in the US.

This paper attempts to take a relook at the First Sale Doctrine and intends to assess how the same can be applied with respect to digital works. Part II of the paper provides an account of the advantages of the doctrine as well its evolution in the US. The transformation of the doctrine will help shed light on how it is relevant even in the present times, despite being branded by some as archaic. Part III of the paper looks at the problems faced in the application of the doctrine with respect to digital technology. The judicial interpretation of the doctrine with respect to digital works as well as the measures taken by content industries is considered in this part. Part IV provides a glimpse into the Copyright Exhaustion Principle in India and the possible application of the current legal framework to digital technology. In Part V of the paper, the author attempts to look at possible measures that could be adopted in reviving the doctrine. Part VI forms the Conclusion.

  1. FIRST SALE DOCTRINE – ADVANTAGES AND EVOLUTION IN THE US

The bedrock of copyright protection jurisprudence rests on the idea of providing a reward to the creators of new works that would, in the larger scheme of things, benefit society. Creators of new creative work enjoy protection based on this notion. However, it has never been the aim of copyright law to provide a monopoly to an individual over her work. Copyright law has always aimed to protect individual rights but has done so with the larger societal interest taken into consideration. In order to guarantee this goal, both exclusive rights and their limitations have been artificially set by law and their balance is constantly double-checked by legislators, judges and academia[ii].

The common law principle of exhaustion applies to different types of Intellectual Property in different ways, but it essentially implies that the rights of the owner of a certain work are exhausted after the first use of the subject matter of such property. It is based on the alienability principle that advocates the need for free flow of goods in a healthy commercial environment. This exhaustion principle has found form as the First Sale Doctrine with respect to copyright in the United States of America and has undergone a significant amount of transformation over a period of time.

The first sale doctrine is primarily a limitation on the copyright owner’s exclusive right of distribution[iii]. It means that when the creator of the work parts with her work by way of a lawful first sale, she no longer has a right over how the work is further distributed. The exclusive right over further distribution of the work that she enjoyed comes to an end in the event of such a sale. Hence, the principle suggests that a person who has lawfully acquired a copy of the work does not have to obtain permission from the owner of the copyright owner before disposing of the work in any way she chooses.

The policy concerning protection of individual rights finds the light of day and is satisfied on the first sale of a copyrighted good. This can be said to be true since it is at this moment that the creator of the work receives her just reward. The policy concerns with respect to sufficiently encouraging an author are culminated on an authorized sale between owner of a creative work and another individual. Thereafter the interest of the creator necessarily gives way to the policy that opposes any kind of restraint on the alienation of property as well as any curb on trade.

It is a well-accepted idea that the creator enjoys protection over the copyright over the work and not over the physical copy of the work. Hence, there is a clear distinction made between the copyright and copy of the work. If a creator were permitted to control distribution of the work beyond the first sale, it would amount to according rights to the author over the physical copies of the work itself. This would run contrary to the objective of copyright jurisprudence.

Although the courts in the US applied the copyright exhaustion principles in a series of cases, the noteworthy decision of the Supreme Court in Bobbs-Merrill v Straus in 1908 laid the foundation for the First Sale Doctrine by clearly underlying the principle. This further led to the statutory inclusion of the doctrine in the Copyright Act the following year.

Advantages

The development of the Common law principle of exhaustion and subsequently that of the First Sale Doctrine is seen as advantageous through the lens of the economy, through constitutional notions and keeping in mind the overall purpose of copyright law. The Doctrine can be seen as having benefits that are specific to individual users, to the industry and to the society as a whole.

Perzanowski and Schultz in their article have highlighted that the doctrine has four documented benefits viz., access, preservation, privacy and transactional clarity, apart from aiding innovation and encouraging platform competition[iv].

Access

The most obvious way in which distribution in the form of legally alienable copies increases access to copyrighted works is by making copies of those works available to many consumers at a lower cost than the retail price charged by the copyright owner (or her licensees) for the purchase of a copy[v]. Since the first sale doctrine permits a burgeoning secondary marketplace for legal copies and allows transactions that are not controlled by the owner of the copyright, it ensures adequate access to creative works.

A secondary market or aftermarket refers to a market composed of previously circulated works. Hence, the first sale doctrine allows the consumers to purchase legitimate copies of a creative work at a price lower than that charged by the owner or initial retailer. The ability to freely alienate one’s personal property into secondary markets has been seen to promote competition between the original publishers and the sellers of used works, increasing accessibility via secondary markets[vi].

The presence of a secondary market with respect to creative works facilitated by the doctrine ensures better availability of works and ensures the same at affordable rates. The absence of a secondary market may lead to frustration among consumers. This also guarantees that content owners reduce prices of their works, since the secondary market acts as a competition to them. This competition between primary and secondary sellers goes a long way in ensuring an environment of economic efficiency.

Price discrimination refers to a pricing strategy, which allows the seller to charge different prices for a product from different customers. There has been a raging debate fostered by the prevalence of the doctrine concerning the effect on the price discrimination that can be offered by the primary seller. However, with the help of evidence, it is now clear that secondary markets are better at price discrimination and at maximizing social welfare than copyright owners[vii].

Preservation

Creative works constitute the collective culture of a society. It encompasses the cultural history of a people and offers a gateway ideological towards it that needs to be protected. In light of this, copyright law concerns itself with all creative works, not just the ones that are economically valuable.

The First Sale Doctrine safeguards the preservation of works that may no longer be available in the primary market for whatever reason – political, economic or otherwise. Secondary markets not only keep these works in circulation but also prevent their permanent loss by encouraging redundancy via broad geographic distribution of multiple copies[viii].

Copy ownership (thus) leads to preservation, and distributing copies of a work to the public increases, perhaps significantly, the likelihood that a work will survive into the future. The first sale doctrine plays a key role in this “preservation effect” of diverse copy ownership[ix].

Privacy

Privacy is deeply valued in a liberal democratic society as a constitutional guarantee since it has a deep connection with intellectual exploration and creativity[x]. In such an instance the owner of such content cannot regulate the access to information. The First Sale Doctrine ensures that the consumers can transfer works without permission of the copyright holder, thereby allowing them to do so privately and anonymously[xi]. It prevents a situation where the owner of the copyright can demand information about all subsequent transactions of the work carried out by the primary buyer of such work.

Transactional Clarity

The Doctrine also promotes market efficiency and transactional clarity by protecting consumers from high information and transaction costs and deceptively complex limitations on the use of low-cost copyrighted goods[xii]. Creating specific transaction terms may be disadvantageous to the owner as well as buyer; the owner has to incur exorbitant costs for creating and enforcing such terms, whereas the buyer will have to comprehend the terms that are applicable with respect to each transaction, which may prevent them for entering into transactions in certain cases. This situation is averted as a result of the Doctrine. As a result, the interests of the owner as well as the buyer are addressed.

Spurring Innovation

Apart from the above-mentioned advantages, Perzanowski and Schultz have highlighted the importance of innovation that is fostered as a result of the Doctrine. Innovation spurred by first sale comes in three forms: innovation by copyright owners to compete with secondary markets, innovation by secondary market providers, and user innovation[xiii].

The presence of a vibrant secondary market of their works encourages creators to craft either new forms of existing works or to form new works altogether. As a result, the volume of creative work remains steadily on the rise.

Innovation can also be in the form of improved business models. The possibility of selling works in the secondary markets and the resultant competition it creates ensures that all players adopt the best possible business strategies with respect to their transactions.

The first sale doctrine supports user innovation in two ways. First, without first sale, the creation and diffusion of these innovations would be far more costly and difficult[xiv]. Secondly, it prevents restrictions on the disposing of property that are imposed prior to its alienation. This is in tune with the alienability principle – one that encourages and seeks to facilitate free flow of goods in commerce.

Encouraging Platform for Competition

Perzanowski and Schultz also state that the Doctrine enables consumers to alienate past purchases and recover much of their investment when switching platforms[xv]. Buyers of creative work are able to recover at least a part of the money they initially spent on purchases. This could encourage them to buy new creative works. This promotes overall market efficiency. The possibility of recovering a part of the amount can act as an incentive to purchase further.

Sarah Abelson has also highlighted the importance of the Doctrine in this light, as she says that the availability of resale options could encourage purchase of works. This promotes competition as a result[xvi].

Discourages Casual Piracy

Apart from the factors underlined by Perzanowski and Schultz, Sarah Abelson asserts that the First Sale Doctrine may act as a deterrent to casual piracy. The availability of legitimate secondary copies of creative works may assuage the demands of consumers and may prevent them from relying on unlawful means to procure such works. She states that by creating a secondary market, the industry is sending a signal that each copy of a musical work has monetary value[xvii]. Such monetization of works can be beneficial to customers and creators alike.

Evolution Of The First Sale Doctrine In The US

 

Bobbs-Merrill v Straus

Although other cases have helped shape the First Sale Doctrine, the decision of the US Supreme Court in Bobbs-Merrill v Straus[xviii] can be considered as particularly significant since it was the first time that the Court recognized the limitation on the copyright owner’s right over a particular copy following its initial lawful sale.

Bobbs-Merrill had brought a case against Isidor Straus and Nathan Straus in the Circuit Court of the United States for the Southern District of New York to restrain the sale of a copyrighted novel, entitled “The Castaway,” at retail at less than $1 for each copy[xix]. Being a retailer, Straus lawfully purchased copies of the novel and sold them for 89¢. For this action, Bobbs-Merrill initiated action against them for alleged copyright infringement.

It was contended that the Defendants were aware of a copyright in the book while purchasing copies of the same. Since there were terms of notice printed on every copy, they could not deny knowledge of the same. However, it was held that the owner of the copyright had no right to impose restrictions on further transactions, including regulating the price of subsequent transactions. The Court recognized the fact that law vested in the owner of a work the exclusive right to trade copies but the same extended to the copies sold in the first instance only. It was emphasized that any attempt to control the further distribution of copies would run contrary to the purpose of Copyright law as well as the intent of the Congress. It held, “In our view, the copyright statutes, while protecting the owner of the copyright in his right to multiply and sell his production, do not create the right to impose, by notice, such as is disclosed in this case, a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract. This conclusion is reached in view of the language of the statute, read in the light of its main purpose”[xx].

Copyright Act 1909

The US Congress provided statutory authority to the Doctrine in 1909 by incorporating Section 41 in the Copyright Act that was enacted. This provided, “the copyright is distinct from the property in the material object copyrighted” and “nothing in this Act shall be deemed to forbid, prevent, or restrict the transfer of any copy of a copyrighted work the possession of which has been lawfully obtained.”[xxi]

Copyright Act 1976

The Copyright Act of 1976 incorporated the First Sale Doctrine in § 109(a) wherein it said, “Notwithstanding the provisions of § 106(3), 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.” This safeguarded the right of a lawful owner of a copy by placing an excpetion to the exclusive right of distribution enjoyed by the owner of the work.

Although both recognize the Doctrine, a point of distinction can be made between the two Statutes. While the 1909 Act differentiated a copyright in a creative work from the ‘material object’ that embodied the work, the latter term did not find mention in the 1976 legislation. However, § 101 of the 1976 Act defined both copies as well as phonorecords as ‘material objects’[xxii].

Digital Millennium Copyright Act – Section 104 Report

The Digital Millennium Copyright Act (DMCA) was enacted on 28 October 1998. Section 104 of the Act directed the Register of Copyrights and the Assistant Secretary of Commerce for Communications and Information to prepare a report for the Congress examining the effects of the amendments made by title 1 of the Act and the development of electronic commerce on the operation of sections 109 and 117 of title 17, United States Code, and the relationship between existing and emerging technology and the operation of such sections[xxiii].

The Executive Summary of the Report clearly spells out the purpose of the DMCA. It specifies the foundation of the Act as an effort by Congress to implement United States treaty obligations and for a move of copyright law into the digital age[xxiv]. This is with reference to the WIPO Internet Treaties to which the US is a signatory. The US Congress used it as an attempt to put an end to several issues that cropped up with the coming of digital technology and this included the application of the first sale doctrine to copies and phonorecords of copyrighted works that were delivered through digital means. The enactment of the DMCA was expected to evaluate the relationship that could be shaped between Copyright law and digital technology and was to be ongoing process.

The Report, however, failed to provide significant recommendations concerning the application of the Doctrine. The report looked into the impact of Digital Rights Management as well as Section 1021 of the DMCA on the First Sale Doctrine.

One of the primary obstacles that was considered was the practice of ‘tethering’ copies to an exclusive access device. In case a work is so tethered, it cannot be accessed on any other device and hence prevents the subsequent lawful transfer of the work. Although tethering did not prevent a consumer from transferring content, the receiver of such content would not be able to make use of it.

The Report arrived at the conclusion that tethering of works to a particular device could have a possible negative effect on the application of the Doctrine. Despite this analysis, it found that there was no need for legislative change due to the relative infancy of digital rights management[xxv]. Should this practice become widespread, it could have serious consequences for the operation of the first sale doctrine, although the ultimate effect on consumers is unclear[xxvi].

With respect to the Forward and Delete Technology, the Report stated that even is such technology existed, it was not clear that the market would bear the cost of an expensive technological measure[xxvii] and did not make any recommendations with respect to it.

With respect to emerging business models that could be developed using digital technology, the Report concluded, “We are concerned that these proposals for a digital first sale doctrine endeavor to fit the exploitation of works online into a distribution model – the sale of copies – that was developed within the confines of pre-digital technology. If the sale model is to continue as the dominant method of distribution, it should be the choice of the market, not due to legislative fiat.[xxviii]

The question with respect to reproduction right that was thereafter considered in the ReDigi case was also considered in the Report. The question considered was with the making of temporary copies in the case of transfer of a work. The implications of the same were considered and it was concluded that the making of temporary copies of a work in RAM would implicate the reproduction right only as long as the reproduction persisted long enough to be perceived, copied, or communicated[xxix].

Since the release of the report, digital technology has grown by leaps and bounds. The digital landscape is a lot different as compared to how it was at the time of the release of the Report. Digital technology could make it possible to nurture an environment that could help transmissions to be carried out smoothly while at the same time eluding the possibilities of piracy. The report did not appear to anticipate the extent to which digital content would be encumbered by licensing agreements that impose significant restrictions on a customer’s ability to alienate purchased digital content[xxx].

Although the Copyright Office noted that the Doctrine might suffer serious consequences as a result of the growing nature of technology, it concluded that legislative action was not warranted at that juncture. In short, the Copyright Office recommended a “wait and see” approach to the question of whether changes are required to the first sale doctrine in light of the use of technological protection measures or developments in electronic commerce[xxxi].

House Bill 1066

Apart from the DMCA Report, other measures were also initiated in order for there to be a smoother legislative transition with the coming of digital technology. One such effort was House Bill 1066 introduced in the US Congress in during its 108th session 2003-2004 in the form of the proposed Benefit Authors without Limiting Advancement or Net Consumer Expectations (BALANCE) Act of 2003[xxxii].

It aimed to allow the owner of a particular copy of a digital work to sell or otherwise dispose of the work by means of a transmission to a single recipient, provided the owner did not retain his or her copy in a retrievable form and that the work was sold or otherwise disposed of in its original format[xxxiii]. This measure, if passed, could have permitted the application of a digital first sale doctrine, with the forward and delete rule in effect. Although the Bill had bipartisan support, it failed to pass.

One of the reasons for the failure to pass the Bill was that it focused on the privilege of the buyer to further sell their work while completely ignoring the interests of the copyright owner. Although the title of the proposed Bill suggested ‘BALANCE’, the same did not percolate the text of the legislation. Thus, while the proposals may have drawn support from both sides of the aisle, they failed to balance both sides of the copyright equation, favoring consumers even while acknowledging the unique challenges digital works present to copyright holders[xxxiv].

III. FIRST SALE DOCTRINE – PROBLEMS WITH RESPECT TO DIGITAL TECHNOLOGY

The question has arisen, time and again, concerning the application of the First Sale Doctrine to the digital landscape. In the US, scholars believe that if the ambit of § 109(a) of the Copyright Act, 1976 is kept within the physical world alone, it will ultimately become a vestige of history, or at least an archaic doctrine applicable only to the small class of physically formatted works remaining in the new media landscape[xxxv]. At the same time, if copyright holders are free to dictate nonnegotiable license terms and resellers are barred from making necessary intermediary copies, secondary markets – along with their important benefits – will remain confined to the physical world[xxxvi]. Practices such as tethering and time-limited access could act as serious impediments to the application of the doctrine. Hence, in order to look at the all-important balance that copyright law seeks to create, it is necessary to consider the application of the First Sale Doctrine to the digital space.

However, it is believed that a strict reading of § 106 combined with §109 would not permit the application of a digital first sale doctrine. Thus, the statutory text alone, a relic from another era, offers an inadequate approach to first sale in the modern age of digital works[xxxvii]. The 1976 Act offers little perspective and no pragmatic solution to the role of first sale in the twenty-first century[xxxviii].

Although these questions were considered in the DMCA Section 104 report as well as several other Bills that were introduced in the US Congress, such efforts failed to provide a clear answer towards the same. Although academic opinion on the same was varied yet consistent, the matter failed to see further legal development until the United States District Court for the Southern District of New York heard the matter in Capitol Records, LLC v ReDigi Inc. However, the Kirstaeng decision needs to be considered. Although it did not deal with the first sale doctrine with respect to digital works, it remains an important US Supreme Court decision on the matter of copyright exhaustion.

Kirtsaeng v. John Wiley & Sons, Inc[xxxix]

In the instant case, the Court had considered the application of the first sale doctrine with reference to textbooks imported from Thailand by a student named Supap Kirtsaeng. The Supreme Court was of the opinion that there could be no geographic restriction on the first sale doctrine. In a 6-3 decision, the Court held that the copyright owner could maintain control of the first sale of the copyrighted work only.

The Court held that the first sale doctrine was a common law doctrine with an impeccable historic pedigree and that it had played an important role in American copyright law for over a century[xl]. Justice Breyer, delivering the opinion for the Court, stated that for at least a century the first sale doctrine had played an important role in American copyright law[xli].

It becomes necessary to consider the Kirtsaeng decision since some scholars have expressed concern that the opinion of the Court in that case will not have a meaningful effect unless the first sale doctrine is expanded to cover digital content.

Capitol Records, LLC v ReDigi Inc.

The case between Capitol Records and ReDigi is the first one that brought to the spotlight the possible application of the first sale doctrine to digital works in the US. The decision of the US District Court for the Southern District of New York was hailed as one of the most significant in understanding the possible impediments in the interpretation of the first sale doctrine to the digital context. It would not be wrong to conclude that it finally opened the Pandora’s box with respect to the future of §109 of the Copyright Act, 1976 in the age of the Internet.

ReDigi was an online platform that permitted users to sell music they had legally purchased and claimed to be the world’s first, real legal alternative to expensive online music retailers and to illegal file sharing for music lovers who want to own their music[xlii]. ReDigi had set up its website in 2011 and had fashioned itself as an online marketplace which permitted the transfer of pre-owned digital music. Thus, much like used record stores, ReDigi permitted its users to recoup value on their unwanted music, although their sales took place entirely in the digital domain[xliii].

ReDigi claimed that they could ensure if a user who intended to store or sell a song on their service actually owned the same lawfully. It went through two rounds of verification and only approved songs could be transferred via the service.

ReDigi also claimed to have in place the Forward and Delete system, wherein the file once transferred from the user’s system would be deleted. They claimed that their patent pending ‘Atomic Transaction Technology’ permitted the transfer of files packet by packet to their cloud locker, from where it would be subsequently transferred to the buyer’s computer. The original file on the user’s computer would be deleted on such initial transfer. ReDigi did not offer money to the users for their purchase, they got credits instead, which they could use.

The Court, however, made a distinction between §106 and §109 of the Copyright Act, 1976. They came to the conclusion that there exists a significant difference between the ‘Reproduction Right’ and the ‘Distribution Right’ of the copyright owner. Although the First Sale Doctrine places a limit on the Distribution Right of the copyright owner, the Reproduction Right always vests with them. It relied on a number of cases and came to the conclusion that the unauthorized duplication of digital music files over the Internet infringes a copyright owner’s exclusive right to reproduce[xliv].

Based on this, the Court came to the conclusion that ReDigi’s actions amounted to an infringement of the copyright vested in Capitol Records. They held that every time a song was transferred from a user’s computer to the ReDigi Cloud Locker and thereafter to a subsequent user’s computer, it amounted to reproduction of such file, not merely distribution. Although the First Sale Doctrine allowed the user to distribute legally owned content, it did not allow the reproduction of the same, and since ReDigi permitted reproduction of the content along with the distribution, its actions amounted to a violation of §106 of the Copyright Act. The Court held, “[…] the fact that a file has moved from one material object – the user’s computer – to another – the ReDigi server – means that a reproduction has occurred. Similarly, when a ReDigi user downloads a new purchase from the ReDigi website to her computer, yet another reproduction is created. It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created.[xlv]

The Court also considered the claim of Fair Use as put forth by ReDigi, but came to the conclusion that its actions weren’t protected by such defense. In the process Judge Richard J Sullivan accepted that digital technology did pose a threat to the application of various provisions and principles relating to copyright and stated, “the first sale doctrine was enacted in a world where the ease and speed of data transfer could not have been imagined[xlvi]”. However, his view was that the Congress alone could remedy a change in such a situation and that the limited powers of the Court prevented such an action.

Although the ReDigi court applied the letter of the law and found that there was infringing activity, one could argue that through such an interpretation, it spelt the demise of the First Sale Doctrine in the digital context. This is because every use of a work in the digital space inevitably creates a copy. Hence, the distribution of a work cannot only happen in the digital space with the inevitable reproduction of such work. Although it is not a US Supreme Court decision, if it sets the benchmark for the application of §109 in the digital world, the future of the doctrine remains in question.

Moreover, as discussed earlier, while copyright law protects the interests of the creator, the doctrine is in place to protect the interests of the buyer who has lawfully purchased such work. It is also a potent tool to ensure the free flow of goods in a commercial set-up and its demise could lead to a tilt in the delicate balance that needs to exist for the free flow of information in the society. Hence, any application of the Doctrine in the digital context must keep in mind the larger purpose of the law before applying the same. The ReDigi court failed to do so, and as a result brought into question the future of the doctrine in the light of the balance that copyright law seeks to create. This is all the more relevant since the ReDigi decision was delivered not long after the US Supreme Court highlighted the importance of the doctrine in the Kirtsaeng case. The ReDigi court ignored the unimpeachable historical pedigree of the doctrine and its importance in the copyright law of the country that was so persistently pronounced by the US Supreme Court. The decision, however, led to an increase in the academic debate surrounding the doctrine and was fuelled by actions taken in different European countries.

Contracts Governing Transfers

Although the application of the First Sale Doctrine itself remains uncertain in the digital context, there is another strategy used by content creators that needs to be considered. Increasingly, owners of creative content are choosing to use contracts as a potent tool to regulate transfers. The implications of the same warrant consideration.

Kindle books offer an excellent example for the same. In the real world, one could purchase a book from a store by lawful means and thereafter wore the Exhaustion Shield to protect oneself from any infringement onslaught in the event of future sale of the book. The use of licenses instead of ‘sales’ in the digital sphere has stripped the user of this shield. Amazon offers its users to view and read books on Kindle but the same such user is strictly bound by the terms of use offered by them[xlvii]. This is increasingly becoming the trend among content owners with respect to not just books but also other creative content such as movies and music.

Although this appears to protect the interests of the content owners, it can be termed as an ‘extra-copyright law’ measure, since content industries rely on measures outside the scope of copyright law for protection. Since the license works as a legally enforceable contract between the parties, in the event of a conflict, the transaction will be surveyed through the lens of contract law, as opposed to copyright legislation.

The use of licenses, however, can be viewed as being detrimental to copyright jurisprudence. It creates a situation where resale remains essentially foreclosed. Since the contract governs the relationship between the parties, the application of the First Sale Doctrine becomes impossible. This entirely limits the interests of the buyer by preventing any action with respect to such content by them. Secondly, it prevents the creation of a lawful secondary market, since the reuse of content doesn’t become a legally valid option. This creates a power position for content creators who can essentially create a monopolistic position for themselves, a situation that copyright law seeks to prevent.

Members of the legal fraternity as well as other stakeholders are critiquing the use of licenses to a large extent. It is believed, “given such expansive – and indeed, draconian – restrictions, licenses are unsurprisingly generating controversy. In a world that increasingly relies on digital files to exchange works of authorship, whether music, movies, or e- books, the proliferation of licensed-only works presages a world in which consumers can never truly “own” copies of their favorite works.[xlviii]” Moreover, most customers remain unaware of the terms of use, as one study indicated that fewer than 8% of users actually read end- user license agreements[xlix].

Vernor v Autodesk Inc

With respect to computer software, the United States District Court for the Western District of Washington examined the application of the First Sale Doctrine in Vernor v Autodesk Inc[l]. The case dealt with the application of the doctrine with respect to ‘shrink wrap’ agreements, but could provide as an indication with respect to licenses governing all creative content.

Judge Richard A Jones, who decided the matter, was of the opinion that the following factors[li] needed to be considered in order to determine whether a particular software was licensed or whether ownership was transferred

(a) whether the copyright owner specifies that a user is granted a license,

(b) whether the copyright owner significantly restricts the user’s ability to transfer the software, and

(c) whether the copyright owner imposes notable use restrictions.

It is safe to conclude that the Court in this case has taken a narrow interpretation of the terms of the license and it prevents the application of the First Sale Doctrine in most cases of relationships governed by such an agreement. It is pertinent to note that although such an agreement would stand the test of the principles of contract, the purpose of copyright law will have to be evaluated through an entirely different lens.

  1. COPYRIGHT EXHAUSTION PRINCIPLE IN INDIA

Since the move towards a digital environment is a certain global path, every State including India needs to be equipped in dealing with the same from a legal standpoint. The move towards digitization is going to bring new challenges to the application of the copyright law in India too and we can learn from both the assessment as well as the inaccuracies of different countries, including the US. In this Part, an assessment of Indian principle of copyright exhaustion will be carried out and the possible outcome of a ReDigi like situation will be studied.

Although the copyright exhaustion principle is a common law inheritance that India shares with the US, it has failed to translate it into statutory form. However, a combined reading of various provisions secures the interests of the lawful buyers of creative content.

Section 14 (a) – (c)

Section 14 of the Copyright Act, 1957 lays down the meaning of Copyright and states the ambit of the exclusive rights provided therein. Section 51 states that is a person does any act stated in Section 14 without authorization of the owner of the copyright or beyond such authorization, it amounts to infringement of the right vested in such owner.

 

The Act, of course, makes a distinction between the extents of rights granted to every type of work. With respect to literary, dramatic, musical artistic works and computer programs found in clauses (a) to (c), the Act suggests the application of the exhaustion principle. The right extends merely to issue copies of the work to the public not being copies already in circulation[lii]. Therefore the right to distribution extends to new copies only. With respect to copies legally procured from the content creator, there exists a limitation on the exclusive right of such creator.

The Delhi High Court in 1985 was called upon to pronounce a decision on the application of the same in the case of Penguin Books Ltd v India Book Distributors & Ors[liii]. Although the case involved the importation of copies of books by India Book Distributors after purchasing the same from United States of America Penguins and would invite the application of the exhaustion principle, the court delivered a decision per incuriam, since the same was not considered. The decision fails to even mention ‘first sale’ and ‘exhaustion’ in this judgment. Although Section 51(b) (iv) states that importation of infringing copies into India can be termed as infringement, the court failed to use the exhaustion principle in order to determine whether the copies could be termed as infringing.

Section 53 was used in order to arrive at the conclusion that the act of India Book Distributors went contrary to the purpose of the legislation. Hence, despite international advancement on the same, the legal standpoint concerning exhaustion in India as well as its extent remains in question.

Section 14(d) – (e)

Although the Act is clear in stating that the right to issue copies to the public with respect to primary copyrighted works has a limitation on the same, the ambit of such limitation remains unclear with respect to derivative works. Section 14(d) deals with cinematograph works while Section 14(e) speaks about sound recordings. Both provisions have identical rights stated, “to sell or give on commercial rental or offer for sale or for such rental, any copy of the film/sound recording[liv]. Hence, with respect to cinematograph film and sound recording the extent of the distribution right remains uncertain. Judicial interpretation will be able to explain the ambit of the interest of a lawful purchaser of such creative content.

Since the language of the law specifically extends the right of the content creator to ‘any copy’, a literal interpretation of the same could mean that such right extends to copies once legally sold too. While Section 14(a)-(c) specifically limit the scope of the distribution right to copies not already in circulation, clauses (d) and (e) do not find any specific terminology and the same will have to be the subject of judicial interpretation. The understanding of the same will determine the extent of the exhaustion principle in India with respect to cinematograph film and sound recording.

Reproduction Right

Since the transfer of content in the digital space is possible only through the union of reproduction rights combined with distribution rights, it becomes pertinent to note the extent of former granted under Section 14 in India.

With respect to all types of content, primary as well as derivative, the Act clearly states that the exclusive right to reproduce a work vests with the content creator. Such reproduction right extends to the reproduction for the purposes of storing the work in any medium by electronic means.

Hence, even if the exhaustion principle can be applied to content as per Section 14, the possible extension of the same to digital content will first have to pass the test of the extent of reproduction rights provided under the same provision. Since Section 14 extends to storing the work in any medium by electronic means and fails to mention incidental copies, it can be concluded that a situation similar to the ReDigi case in India would have borne the same result.

 

Section 65A

The Protection of Technological Protection Measures in Section 65A by virtue of the Copyright (Amendment) Act 2012[lv] has been met with varied responses among stakeholders. Content creators found it a welcome move since they believed that rampant piracy in the digital sphere was causing huge losses in revenue to the content industry. On the other hand, proponents of open source measures were of the opinion that it leads to extreme protectionism of content, which would prevent free as well as democratic flow on information in society.

The protection of technological measures may add a further layer of provisions against the application of a digital exhaustion principle in India. Since the provision validates the application of technological measures to protect content, it could prevent lawful buyers of content from further transferring the work to others. The provision clearly stipulates that anyone “who circumvents an effective technological measure applied for the purpose of protecting any of the rights conferred by this Act, with the intention of infringing such rights shall be punishable with imprisonment which may extend to two years and shall also be liable to fine”[lvi]. This creates a situation where the development of a lawful secondary market for content becomes almost impossible. This could disrupt the equilibrium of protection and availability of creative content.

  1. DIGITAL EXHAUSTION PRINCIPLE

Keeping in mind the purpose of copyright law as well as the purpose of the First Sale Doctrine, several scholars have suggested different modes through which the doctrine can be safely carried onto the digital sphere, giving it a much needed breath of fresh air.

Author Theodore Serra is of the opinion that Resale Royalties could act as a possible answer to the application of the First Sale Doctrine in the digital domain. His idea is inspired by such a measure undertaken with respect to visual content in twentieth century France. He is of the opinion, “Resale royalties provide an avenue to compensate copyright holders for the resale of their digital works.[lvii] However, it is pertinent to note that this could lead to a conundrum concerning enforcement. A country such as India is already struggling with the enforcement of copyright in the physical world, such a measure would create problems as well as additional costs for law enforcement agencies.

Authors Perzanowski and Schultz suggest that the common law principle of exhaustion needs to be looked into in order to protect the interests of the lawful buyer of creative content. Since copyright law aims to create a balance between protection and access, every act of re-sale of creative content on the Internet needs to be viewed through the lens of this balance in order to assess the same. They are of the opinion that since the principle predates the Bobbs Merrill case and its subsequent statutory inclusion, courts can continue to determine matters concerning lawful resale of creative work by owners of legally valid copies of works. They say, “By treating the original copy acquired from the copyright holder and all second generation copies made from it as a single unit for the purposes of exhaustion, courts would retain the balance between copyright holder and copy owner interests that has served copyright well for over a century.[lviii]

Although this seems like a rational solution, there is a need to provide statutory guidelines concerning the exhaustion principle to be adopted, in order to assure clarity and uniformity in the application of the law. Although the courts are certainly better equipped to consider such matters, legislative backing for the same would go a long way in assuring all stakeholders that their interests are protected by law.

In order to create a legitimate Digital First Sale Doctrine, the law will need to clearly chalk out the ambit of ‘Reproduction Right’ of the content creator. It will have to consider reproduction for the purposes of distribution as a special category and accommodate the same within the realm of exceptions to the rights of the content creator. This will ensure that even though a lawful buyer of creative content makes a subsequent transfer of content, it is protected by virtue of the Doctrine.

The law will also have to ensure that there is statutory recognition given to the ‘Forward and Delete’ Rule. The First Sale Doctrine cannot be preserved as a realm of another era and needs to be adapted to the current scenario. In the light of the same, a buyer needs to be able to transfer content to another, without disturbing the rights of the owner. This can be made possible by the application of the forward and delete rule.

  1. CONCLUSION

“In a cosmic perspective, a thing of beauty has no boundary and is humanity’s property but in the materialist plane on which artists thrive, private and exclusive estate in art subsists. Man, the noblest work of the Infinite Artist, strangely enough, battles for the finite products of his art and the secular law, operating on the temporal level, guardian’s material works possessing spiritual values”[lix]. These words of Justice Krishna Iyer pertinently encapsulate the dichotomy that exists with respect to the protection of creative content. It also brings to light the fact that the protection of creative content cannot be seen as a mere commercial measure but as an act of protecting collective human culture and expression.

In determining a valid course of action for the future, the common law principle of exhaustion and its purpose needs to be carefully looked at. It would be wrong to label it as archaic; instead measures need to be taken in order to revive the same to suit the current scenario. At the same time, a remodeling of the current legal framework also needs to be done in order to provide statutory sanctity to the principle.  These measures will be made possible only when the interests of all stakeholders are considered in remodeling the current legal framework and the legislators maintain the pristine balance of copyright.

__________________________________________

[i] Martin Peitz and Patrick Waelbroeck, Piracy of Digital Products: A Critical Review of the Theoretical Literature, 1, Working Paper 42/2006, Bruchsal, (2006)

[ii] Peter Mezei, Digital First Sale Doctrine Ante Portas: Exhaustion in the Online Environment 6 JIPITEC 23, 24 (2015)

[iii] Report of the US Copyright Office Pursuant to §104 of the Digital Millennium Copyright Act, 2001, US Register of Copyrights, Official Record, xviii, (August 2001), available at https://www.copyright.gov/reports/studies/dmca/dmca_study.html, last seen on 01/01/2016

[iv] See Aaron Perzanowski and Jason Schultz, Digital Exhaustion, 58 UCLA Law Review 889 (2010-2011)

[v] Ruth Anthony Reese, The First Sale Doctrine in the Era of Digital Networks, 44 Boston College Law Review 577, 585 (2003)

[vi] Jonathan C Tobin, Licensing as a Means of Providing Affordability and Accessibility in Digital Markets: Alternatives to a Digital First Sale Doctrine, 93 J Pat & Trademark Office Soc’y 167, 171 (2011)

[vii] Supra 4 at page 895, quoting Ruth Anthony Reese, The First Sale Doctrine in the Era of Digital Networks, 44 Boston College Law Review 577, 585 (2003)

[viii] Ibid

[ix] Supra 5 at page 607

[x] Edward Snowden, “I don’t see myself as a hero because what I’m doing is self-interested: I don’t want to live in a world where there’s no privacy and therefore no room for intellectual exploration and creativity.” accessed https://www.brainyquote.com/quotes/keywords/privacy_2.html

[xi] Supra 4 at page 896

[xii] Ibid

[xiii] Ibid at page 897

[xiv] Ibid at page 899

[xv] Ibid at page 900

[xvi] See Sarah Abelson, An Emerging Secondary Market for Digital Music The Legality of ReDigi and the Extent of the First Sale Doctrine, 29(4) Entertainment and Sports Lawyer 8, (2012)

[xvii] Ibid at page 10

[xviii] Bobbs-Merrill v Straus, 210 U.S.C 339 (1908, Supreme Court of the United States), available at https://supreme.justia.com/cases/federal/us/210/339/case.html, last seen on 12/02/2016

[xix] Ibid at Page 341

[xx] Ibid at Page 350

[xxi] Copyright Act of 1909, repealed and superseded by Copyright Act of 1976

[xxii] § 101 of the 1976 Act says, “‘Copies’ are material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term “copies” includes the material object, other than a phonorecord, in which the work is first fixed.”

[xxiii] Supra 3

[xxiv] Ibid at page v

[xxv] Ibid at page xvii

[xxvi] Id.

[xxvii] Ibid at page xix

[xxviii] Ibid at page xx

[xxix] Ibid at page xxii

[xxx] Sarah Reis, Toward a “Digital Transfer Doctrine”? The First Sale Doctrine in the Digital Era, 109 Northwestern University Law Review 173, 185 (2015)

[xxxi] Supra 5 at page 583

[xxxii] Summary of the Net Consumer Expectations (BALANCE) Act of 2003, Official Website of the US Congress, available at https://www.congress.gov/bill/108th-congress/house-bill/1066, last seen on 20/02/2016

[xxxiii] Ibid

[xxxiv] Theodore Serra, Rebalancing at resale: Redigi, royalties, and the digital secondary market, 93 Boston University Law Review 1753, 1784 (2013),

available at https://www.scopus.com/inward/record.url?eid=2-s2.0-84889846187&partnerID=tZOtx3y1,

last seen on 17/01/2016

[xxxv] Ibid

[xxxvi] Ibid at page 1781

[xxxvii] Ibid at page 1771

[xxxviii] Ibid

[xxxix] Kirtsaeng v. John Wiley & Sons Inc, 654 F. 3d 210, (2013, Supreme Court of the United States)

[xl] Ibid at page 1363

[xli] Ibid

[xlii] Is ReDigi Legal? Yes!, available on

https://www.studiolegaleclipeo.it/blog/wp-content/uploads/2013/03/DOCUMENTO_Is-ReDigi-Legal-Yes.pdf, last seen on 14/01/2016

[xliii] Capitol Records LLC v ReDigi Inc, No. 12 Civ. 95 (RJS), (2013, United States District Court for the Southern District of New York), available at https://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=1334&context=historical, last seen on 09/01/2016

[xliv] Ibid at page 5

[xlv] Ibid at page 7

[xlvi] Ibid at page 13

[xlvii] See Andy Patrizio, You Don’t Own Your Amazon Kindle eBooks, Technology Guide, available at

https://www.technologyguide.com/feature/you-dont-own-your-amazon-kindle-ebooks/, last seen on 02/03/2016

[xlviii] Supra 34 at page 1761

[xlix] See Jeff Sauro, Do Users Read License Agreements?, Measuring Usability, available at https://www.measuringusability.com/blog/eula.php [https://perma.cc/R6ZS-75X7], quoted in Supra 30 at page 183

[l] Vernor v Autodesk, 621 F.3d 1102 (2010, United States District Court for the Western District of Washington)

[li] Ibid at 1110-11

[lii] Section 14(a) and (c), The Copyright Act, 1957

[liii] AIR 1985 Delhi 29

[liv] The text is similar in Section 14(d)(ii) and Section 14(e)(ii)

[lv] Section 37, The Copyright (Amendment) Act, 2012

[lvi] Section 65A(1), The Copyright Act, 1957

[lvii] Supra 34 page 1787

[lviii] Supra 4 at page 937

[lix] IPRS v Eastern Motion Pictures (AIR 1977 SC 1443)

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