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Is Amazon About to Break the Law?

Posted By Marilynn Byerly On February 19, 2013 @ 10:04 am In Amazon,legal | 7 Comments

[1]Amazon has patented a means to sell used e-books within the Kindle system. A book will be branded within the system when it is bought, and when the buyer puts it up for resale at the Kindle store, it will be removed from his account and transferred to the buyer’s account. Amazon will receive a small fee for each sale. A limited number of sales of each book may or may not be included in the system.

According to copyright law, specifically the first sale doctrine, this is illegal because digital goods aren’t physical things so they can’t be resold. (See my article, “The First Sale Doctrine and eBooks [2],” for more details.)

But a legal battle is currently being fought between a used digital music, ReDigi [3], and the various groups in the music industry, over a similar system. If ReDigi is able to win this, Amazon will probably move forward with their own system of resale.

At first glance, it appears Amazon would be cutting into its own Kindle profits with this system, but Amazon isn’t known for its poor business practices. Here’s what it will gain from the system:

Buyers go for the cheapest prices. If a used Kindle e-book is cheaper than any other version of the book, buyers will start using the Kindle system and its hardware.  iTunes, Nook, and other e-book retailers won’t be able to match these lower prices unless they start selling new e-books for next to nothing, or they put into place their own reselling system. Such a complex system would take some time, perhaps years, so Amazon would gain the advantage in the market for many years to come.

Some in the industry believe that Amazon is intent on killing off publishers so that authors will have to go the self-publishing route, and authors as individuals have no real bargaining power when it comes to the terms Amazon will set.  (See “Used eBooks: The Ridiculous Idea that Could Also Destroy Publishing [4]”)

What will all this mean if Amazon’s used e-book system becomes available? Readers may be happy with the system, but authors and publishers will not. Publishing has a very low profit margin as is, and anything that will cut into that profit will hurt, sometimes to the point of putting authors and publishers out of business.

Authors like myself have been busy educating readers on the first sale doctrine, so they’ll know that e-books can’t be resold, loaned, or put online for free. But a system like this will make readers believe that if Amazon can do it, so can they. Piracy will spread.

If Amazon gains total supremacy in the distribution market, then they’ll be able to dictate the terms in contracts with authors and publishers, and those terms will shift even more of the profit into Amazon’s pockets.

If the other distribution markets fail and Amazon is the only source of e-books, it can close down the used marketplace, and readers will have to pay much more for the surviving content. After all, Amazon is in it for Amazon—as they have proven over and over again.

This system may not be the E-Book Zombie Apocalypse, as a universal removal of first sale doctrine on digital goods would be. But it may very well be the beginning of the end of publishing as a profitable venture.

• This article originally appeared on Marilynn Byerly’s blog, Adventures in Writing [5]


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7 Comments To "Is Amazon About to Break the Law?"

#1 Comment By drokka On February 19, 2013 @ 10:46 am

The solution to this is and all other digital issues. Simply stop giving in to Amazon. There is nothing preventing a collective of authors/publishers/distributors from creating their own system and controlling it. Amazon aren’t the only tech-savvy people in the world. While it might take time, it would also resolve a lot of issues.

#2 Comment By Michael W. Perry On February 19, 2013 @ 11:57 am

This isn’t a matter that can be left to be squabbled over in the courts. Their decisions are likely to be all over the place. Judges are idiocentric. Some courts will see ‘used’ ebooks as like their printed cousins. Others won’t. Amazon has more than enough money to litigate this for years, much as they did with their refusal to pay sales tax in some states.

The main point that authors and publishers need to stress is that a previously sold ebook isn’t like a used book or car. It suffers no wear and tear. It’s as a good as new until the format it’s distributed in become obsolete. Reselling a used book really is selling something less valuable than new. Selling an ebook isn’t like that. It’s not ‘used’ in the common-sense meaning of worn.

Fortunately, there’s a ‘good’ technology that can alleviate the problems created by the bad. Computers are quite good at doing detail work consistently and cheaply. It’s no harder for an ebook retailer such as Amazon to pay an author/publisher for later sales than for the first. Yes, maybe those later sales might pay a bit less. The first owner is, after all, giving up all his rights to the book. But an author/publisher shouldn’t be getting nothing for later sales. In fact, he or she should be getting enough that the price of a formerly sold ebook isn’t that much less than for a new one. It is, after all, exactly the same item.

In an ideal world, we could turn to Congress for a legislative solution. But as the long court squabble over Google and orphan texts demonstrates, our politicians aren’t up to the task. The ruling mantra among Democrats is “What does Hollywood want?” That among Republicans is spinelessly fretting over what a hostile media will say about them this time. For our purposes, both are worthless.

The key to solving this problem lies in the legal fig leaf that Amazon will be using. That’s the fact that they’ve created an eco-system of hardware and software that allows them to claim that the person who sold an ebook back to them no longer possesses it. That control and tracking is how Amazon’s handling of a resale is different from that of a major print book publisher. The latter, among other reasons, can’t assess a charge when a print book is resold because it has no way of knowing who owns or is buying it. With that first sale it lost control of the book. Amazon hasn’t lost control of Kindle ebooks. As the fuss over Orwell’s 1984 demonstrated a few years ago, it retains ultimate control of every ebook you’ve bought from them.

That’s why Amazon does know precisely who has legal possession of an ebook. The legality of its entire resell model depends on that. And it’s that knowledge and that role as the sole and perpetual middleman for a resell that is the Achilles’ heel in what appears to be a scheme to shut authors and publishers out of all the profits from reselling. Because it knows when those transactions take place, it can also be forced, contractually, to pay authors and publishers a substantial slice of that resale price.

In short, we don’t need to wait for courts to agree this or for a Congress indifferent to any voice but that of well-heeled lobbyists to act. We can do what I’ve been told some artists and painters now do, establish contractual terms make the first sale contingent on getting a hefty share of all later sales. After all, what’s being resold isn’t paper, it’s the words we’ve put down.

The real question isn’t whether these contracts would work. They will. Contracts in themselves carry the same force as a law. It’s whether a call for them is workable.

Large publishers will no doubt see the value of the idea and could exert quite a bit of pressure on Amazon if they insist on later-sales royalties. But for that they’re also likely to face nasty lawsuits from the DOJ, much as they did over agency pricing. There is, for some reason, a lot of pro-Amazon sentiment within the Obama administration. They did Amazon’s bidding for agency pricing. They’re likely to do it again. And we’re stuck with them for three more years.

Nor is it likely that some of the smaller authors and publishers that I know would stand tall in this matter. Many seem unable to see that long-term principles matter more than next-month’s royalty check. You see that with those who sign up for Amazon Select. A bit of money matters more than the inherent danger of single-sourcing their books through one vendor. Profit over principle has always been the primary weakness of capitalism, big and small.

One final option is worth mentioning because it just might work. While Amazon is, as the article suggests, in an excellent position to quickly profit by nothing-for-the-author reselling, the other online retailers aren’t so well positioned, particularly Amazon competitors such as Apple and B&N. They could reach out to authors, making their own market more attractive, by offering an in-advance commitment that if any resale system is ever implemented by them, authors will be properly compensated.

And since Smashwords distributes ebooks to virtually every ebook retailer in the market except (with a few exceptions) Amazon, it might also be well positioned to work out a sensible agreement in this matter.

Remember, in matters like these contracts can be as effective and powerful as court decisions and laws and they can be much quicker to put into place. That’s perhaps the route we should take.

#3 Comment By Common Sense On February 19, 2013 @ 4:25 pm

“The main point that authors and publishers need to stress is that a previously sold ebook isn’t like a used book or car. It suffers no wear and tear. It’s as a good as new until the format it’s distributed in become obsolete. Reselling a used book really is selling something less valuable than new. Selling an ebook isn’t like that. It’s not ‘used’ in the common-sense meaning of worn.”

Sorry, that’s a failed argument. People resell unused merchandise all the time that isn’t “worn”. Being “worn” isn’t a condition for being resold.

The law is the law, but I would argue that digital files ARE physical objects. They may seem as if they are not, but they do take up physical space.

A free market says that I can resell or give away anything that I have purchased. I don’t see why that doesn’t apply to digital items as well. Just like I hand off a physical book I’ve read to my son or daughter so that they can also read it, I should be able to do the same with an ebook.

Just because someone is willing to buy a used ebook doesn’t mean they would be willing to buy the “new” ebook if the used one wasn’t available. The same arguement can be made for illegally downloaded copies. That does not make for a lost sale.

A number of musicians have found that “piracy” is a good way for their music to be heard and for them to gain new fans who then come to their concerts and buy their merchandise. Wouldn’t authors want more people snapping up their next book because they liked the used one they bought (or checked out from the library).

People who want to get around a legitimate sale, new or used, will find a way. After all, thousands of illegal copies are already just a couple of clicks away, yet most people still purchase their ebooks legally.

#4 Comment By Marilynn Byerly On February 19, 2013 @ 5:20 pm

Common Sense, if you have a used paper book, can you magically turn it into two used paper books? Can you keep a copy of it and sell it to someone else like you can with a digital book?

Digital IS different from a physical object. It’s different in the eyes of the law, as well. The analogy will not hold in any sense.

And the day people will pay to see all authors read their books aloud, the “advantage” of pirated books may happen, but that will never happen. Even fame whore Donald Trump had to pay people to go to his readings so he’d have a less than embarrassing small audience.

According to those authors who have experimented with offering free ebooks, the only improvement in sales occurs when it is the first book in an established series or when the author has a huge backlist. If all an author’s books are free, they’ve seen no improvement in numbers of sales. Pirates are cheap bastards.

#5 Comment By Steph B On February 20, 2013 @ 8:33 am

Common Sense argues, “…that digital files ARE physical objects. They may seem as if they are not, but they do take up physical space…”. An ebook is merely a binary signal imprinted onto whatever memory medium your reader uses (one which takes up no more physical space that the ‘empty’ memory space it replaces), so the analogy is nonsensical. A closer analogy to a second-hand ebook scenario is the player-to-player exchange of bought items within online games, which seems to work fine within a closed ecosystem. I suspect Amazon’s plans will be to facilitate Kindle owners to sell unwanted books directly to others, so that a book disappears from a reader’s library and appears in another only at the point of sale. A point to consider is that a second-hand ebook market will almost certainly need robust DRM to work properly.

#6 Comment By willem On February 20, 2013 @ 5:28 pm

“A point to consider is that a second-hand ebook market will almost certainly need robust DRM to work properly.”

Precisely. However some of the same crowd defending ‘used’ ebooks are opposesed to DRM, even though it is hard to imagine a more nightmarish outcome for writers than the DRM free reselling of ebooks.

#7 Comment By Zey Tavia On March 14, 2013 @ 11:47 pm

I’ll be brief: This is extremely disturbing news for us self-publishing authors. :(


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URL to article: http://www.teleread.com/amazon/is-amazon-about-to-break-the-law/

URLs in this post:

[1] Image: http://www.teleread.com/amazon/is-amazon-about-to-break-the-law/attachment/used-their-heft-smartly/

[2] The First Sale Doctrine and eBooks: http://mbyerly.blogspot.com/2009/04/first-sale-doctrine-and-ebooks.html

[3] ReDigi: http://arstechnica.com/tech-policy/2012/01/used-digital-music-file-seller-no-copying-here-almost/

[4] Used eBooks: The Ridiculous Idea that Could Also Destroy Publishing: http://motherboard.vice.com/blog/used-ebooks-is-a-ridiculous-idea-that-could-ruin-authors-publishers

[5] Adventures in Writing: http://mbyerly.blogspot.com/

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