First Sale Hearing Recap

Yesterday, the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet held the latest in its series of hearings as a part of its comprehensive review of our copyright laws. The hearing, “First Sale Under Title 17,” was held at the United States District Court for the Southern District of New York in New York City. Making the trip were six members of the Committee: Judiciary Committee Chairman Bob Goodlatte (R-VA), Ranking Member Jerry Nadler (D-NY), Rep. Jason Chaffetz (R-UT), Rep. George Holding (R-NC), Rep. Hakeem Jeffries (D-NY), and Rep. Ted Deutch (D-FL). There were two primary issues discussed in the hearing: the impact of the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc. and the applicability of the first sale doctrine in the digital context.

Stephen Smith, President and CEO of John Wiley & Sons, Inc., said in his opening statement that the Kirtsaeng decision has undermined their copyright enforcement efforts while failing to result in any benefits for U.S. pricing. Additionally, he argued that the decision hurt the export market and devalued content. When asked if Wiley was seeking a legislative “fix” in response to the decision, Smith hinted that Wiley would be asking Congress to revisit the issue. However, Greg Cram, Associate Director of Copyright and Information Policy for the New York Public Library, noted that the Second Circuit’s decision in Kirtsaeng, reversed by the Supreme Court, opened libraries up to massive potential liability for copyright infringement. Cram also noted that a new rule that would only penalize permissionless initial importation of copyrighted works could still potentially expose libraries to liability, as libraries import works to add to their collections. Jonathan Band, representing the Owners’ Rights Initiative, added that the Supreme Court’s decision in Kirtsaeng is consistent with consumer’s expectations.

A large portion of the conversation regarding digital first sale was in the context of distinguishing sales from licenses. Band, Professor John Villasenor, and John Ossenmacher, CEO of ReDigi, told the Subcommittee that consumers reasonably expect that they own their digital content. Emery Simon, Counselor to BSA | The Software Alliance, disagreed, saying that consumers have long understood that when they purchase software, they’re only getting a license. He added that changing first sale would confuse consumers and undermine licensing models. Simon suggested that the notion of “buying” something is fanciful, comparing a copyright license to an Amtrak ticket. He noted that when you buy an Amtrak ticket, you know you’re not buying the actual physical seat, but rather the right to sit in that seat on the assigned train for the duration of the trip. He said that consumers understand this difference in the ticketing context, and do in the licensing context as well.

As Villasenor noted, licensing-based models are continuing to become more common, and few digital copies are being distributed using sales that confer ownership. However, he cautioned that this lack of ownership option isn’t a problem for consumers, but rather the problem is that consumers aren’t aware that they are only buying a license. He suggested that market forces should be sufficient on their own to bring about a broader offering of purchase options if consumers desire them. Sherwin Siy, Vice President of Legal Affairs at Public Knowledge, disagreed, noting that these licenses are so complex that consumers alone cannot affect the market. He reminded that in some cases, consumers don’t see the contracts until well after they have made their purchasing decisions, for example when installing a piece of software. In addition to concerns about licenses misleading consumers, Cram noted that Congress should consider whether to prohibit the enforcement of contractual limits on copyright exceptions. Adding a restriction on waiver of rights such as first sale or fair use would not be unprecedented; Congress did this in Section 203(a)(5) of the Copyright Act as well as in many other areas of law.

Rep. Deutch expressed concern that there is a “piracy problem,” and was unsure if extending first sale to digital copies would exacerbate it. Ed Shems, a self-employed graphic designer with 23 years of experience in the field, argued that a digital first sale right would make infringement harder to police, and may increase it. Matthew Glotzer, testifying on his own behalf as someone who has spent more than twenty years working in content companies, noted that the costs of distribution have been substantially decreased or eliminated in the Internet age, making transferring of files “too efficient” for the first sale right to apply. However, Ossenmacher disagreed, calling the increased speed of delivery made possible online a “red herring” in copyright discussions. Ossenmacher suggested that instead, a simple solution to piracy is to give value to digital goods by allowing first sale. He added that consumers lose billions in value annually because they are unable to resell their digital goods. Perhaps, he argued, if they could realize the value of their content, they wouldn’t be giving it away for free online. Additionally, it’s worth remembering that the first sale doctrine only applies to copies “lawfully made.” Any unlawful copies could not be permissibly transferred under this right, so it is unlikely that there would be a multiplication effect resulting from a digital first sale right.

Members were uneasy about the idea of a digital first sale right, especially without assurances that the seller did not retain the copy after the sale. Ossenmacher explained to members that there are ways to ensure this, such as by allowing transfers of title in copies only held in the cloud. He also noted that in the physical realm, there’s little guarantee that this has happened. For example, the current first sale right encompasses the sale of CDs. However, there is no way to verify that the seller has not ripped a copy to their computer and retained that copy. Rep. Jeffries hinted that he would be open to an approach where deletion could be guaranteed, but expressed concern about the ability to truly delete a copy without a user being able to recover a “ghost” copy. Rep. Holding indicated that he felt a digital first sale right would result in “government mandated” secondary markets, and that there would necessarily involve an element of surveillance that many might feel is too invasive, especially in light of “disclosures.” Simon echoed concerns about the amount of monitoring that already exists, and cautioned against a system that is too invasive.

Overall, the hearing was fairly subdued and predictable compared with previous ones, with the most surprising element being the number of members that showed up. I’m not expecting much to come from this hearing in particular, but look forward to following the Subcommittee’s activities while they continue their review.