The European Union’s advocate general Maciej Szpunar this week issued an opinion in a case involving the resale of e-books, in which he concludes that the practice is unlawful under the currently applicable statutes and directives.
Although the advocate’s opinion is not binding on the European Court of Justice, the EU’s highest tribunal, it would be unusual for the court to reach a dramatically different conclusion.
Publishers generally cheered the opinion. But Szpunar made clear he thinks the doctrine of exhaustion — roughly equivalent to the first sale doctrine in U.S. copyright law — should apply to digital works, at least in certain instances.
The foregoing considerations lead me to conclude that arguments, of both a legal and a teleological nature, are in favour of recognition of the rule of exhaustion of the distribution right with respect to works supplied by downloading for permanent use. In particular, the permanent possession by the user of a copy of such a work shows the similarity of that mode of supply with the distribution of tangible copies. However, I am of the view that, as EU law now stands, the arguments to the contrary should prevail.
That led the Federation of European Publishers (FEB) president Rudy Vanschoonbeek to issue a shot across the court’s bow.
In the U.S., the Supreme Court has denied the petition of ReDIGI (an online marketplace for digital services i.e.: digital music, eBooks, games, apps, software) to review the Second Circuit's refusal to apply the First Sale Doctrine to the transfer of digital music files. In European legal terms, this means that the U.S. Courts have confirmed that there can be no exhaustion for digital services. In a globalised market, the rules should be identical.
Ironically, and notwithstanding Vanschoonbeek’s bluster, the first sale doctrine with respect to e-books, remains very much in play in the U.S. these days, if not as an immediate legal question than as an increasingly urgent and contentious commercial matter.
Publishers in the U.S. are increasingly vexed by the popularity of e-book loans by public libraries, and have started to take action to limit the practice.
“Library reads are currently 45% of our total digital book reads in the U.S. and growing,” Macmillan CEO John Sargent told the Wall Street Journal in July. “They are cannibalizing our digital sales.”
Earlier this year, Hachette Book Group stopped selling e-books to libraries on a “perpetual” basis. Instead, it charges libraries a fixed fee for each copy under an agreement that must be renewed every two years. Libraries, in other words, must continue to pay for the e-books they lend on a perpetual basis.
Penguin Random House imposed similar terms last year.
As for Macmillan, starting Nov. 1 it will begin limiting each library system to one copy of an e-book for the first eight weeks of a title’s release.
Macmillan’s embargo has raised the hackles of librarians, who see it as an affront to their mission to make knowledge widely and freely available. At the Digital Book World Conference in Nashville this week, the American Library Association announced the launch of a public advocacy campaign to oppose the new restrictions.
In the physical world, of course, the right to resell or loan a book is at the heart of the first sale doctrine. The foundational 1908 case of Bobbs-Merrill Co. v. Straus, in which the U.S. Supreme Court first articulated what became the first sale doctrine (later codified by Congress) concerned a publisher’s effort to restrict the resale of its books.
The publisher, Bobbs-Merrill, inserted a notice in its books declaring that it would regard any effort to resell a copy for less than $1 as a violation of its copyright. The Court disagreed, citing the doctrine of the free “alienability of goods,” including books.
Both courts and the U.S. Copyright Office, however, have so far held that digital files are not equivalent to physical goods, and therefore the first sale doctrine, which rests on the alienability of goods, does not apply to digital copies.
Most publishers of digital media files, whether e-books or downloaded movies, maintain that copies are never really “sold” at all, but are distributed under licenses that are non-exclusive and revocable, leading to bizarre situations such as the recent memory-holing of e-books acquired from Microsoft after the tech company turned off the DRM server they were dependent on.
Worse still for first sale advocates, the courts in ReDigi held that as a practical, technical matter, transferring a file from one device to another, or one hard drive to another, inevitably results in a new copy of the file. Thus, even if the original copy is subsequently deleted, as with ReDigi’s application, the process itself violates the copyright owner’s exclusive right of reproduction, irrespective of whether the first sale doctrine would have applied.
That analysis, however, like the non-equivalence of physical and digital goods, is both teleological and protocol-dependent: transferring a digital file from one memory-storage device to another creates a new copy because that’s how TCP/IP file transfers work. Bits are copied, transferred and recopied.
That raises the question, however, of whether different protocols would require a different teleological and legal analysis.
With blockchain protocols, for instance, digital files can be made to behave more like physical goods than when relying on simple TCP/IP protocols.
Ownership of, or exclusive access to, a discrete digital file can be virtualized as a cryptographic token, and transferred from one party to another simply by assigning the token to a new wallet address in the ledger. No file — whether stored on-chain or off — needs to be copied or moved anywhere.
Moreover, just as the total number of Bitcoins that can ever be created was baked into the Bitcoin protocol from the start, the number of tokens representing ownership of a copyrighted work can be fixed, created a fixed and finite number of virtual “copies” of the work.
Tokens can also be made non-fungible, allowing them to be used to represent unique, one-of-a-kind (“provably rare,” as blockchain aficionados like to say) digital objects, such as a piece of digital art.
The digital collectibles industry, in fact, along with the video games industry, is started down the road of treating digital-object tokens as real property. At the height of the CryptoKitties craze, for instance, the cartoon cats, which are nothing more than smart contracts (i.e. tokens) on the Ethereum blockchain, were trading for tens of thousands of U.S. dollars.
In-game virtual goods, once tied irrevocably to the game in which they were purchased, are being reimagined as blockchain tokens that are independent of the games they’re used in, making them portable between games and tradeable in secondary markets.
The makers of CryptoKitties, Dapper Labs, this week announced plans for a new blockchain called Flow, intended to support “the next generation of games, apps, and...digital assets,” which has attracted investment from Warner Music Group, among others.
Digital collectibles and in-game virtual goods, of course, are digital-native objects; they have no physical antecedents from which to be distinguished, legally or otherwise.
Canadian CMO Access Copyright, however, recently launched a pilot program to test the viability of peer-to-peer e-book sales using blockchain. In Sweden, a startup called Cinezen aims to recreate the video rental store online by compiling a wholesale library of movie rights on a blockchain. Entrepreneurs would then be able to curate their own virtual collection of titles and offer tokenized copies of them to consumers for rental.
Both Access Copyright and Cinezen envision operating their systems with the authorization of copyright owners, something the first sale and exhaustion doctrines explicitly do not require. But either way, if the peer-to-peer resale of e-books proves viable it would not be a great leap to imagine operating a lending library on the some principle, obviating the need for embargoes or other types of restrictions. Libraries could purchase tokens representing access to an e-book title, then lend them for a limited time to the public, just as they do now with physical books.
New technology has always challenged settled law. The history of copyright law is basically an extended record of the effort to reconcile the capabilities of new technologies with the implicit assumptions of copyright statutes and case law.
The first sale doctrine is based on assumptions about the alienability of physical goods. It therefore excludes access to services or intangible phenomena. Blockchain technology blurs the line between goods and services, the tangible and intangible.
Well beyond copyright and the first sale doctrine, that’s going to challenge a lot of previously settle legal concepts and the commercial arrangements they govern.