House first sale doctrine hearing written testimony: John Wiley & Sons, ReDigi
June 2, 2014 | 4:54 pm
We’ve covered the history of efforts to implement resale of digital goods before (more than once, in fact), and there’s been quite a discussion of why it would be a bad idea. Now it’s Congress’s turn to talk about it.
Today a House subcommittee held a hearing concerning first sale and how it related to digital items. InfoDocket has links to the prepared remarks of a number of the attendees, as well as the opening statement by Representative Bob Goodlatte.
Noting the importance of the first sale doctrine, Goodlatte said
Although some legal doctrines may be invisible to Americans, the first sale doctrine is not one of them. First sale has been such an integral part of our economy that entire businesses have been built upon it such as Blockbuster video stores and Netflix by mail. Consumer expectations have also been built upon this doctrine. Laws and consumer expectations are developed independently, but they can help shape each other. This morning, we will hear about both as they apply in the first sale context.
He called attention to the challenge digital good represent concerning first sale, and the need to determine whether it is possible and whether consumers even want it at all.
Over a few more posts, I’m going to look at the contents of the filings. Here are the first two.
John Wiley & Sons
Stephen Smith, President and CEO of Wiley (the company that notably lost the Supreme Court case against someone who imported and resold cheap third-world editions of its textbooks), had a ten-page PDF (8 1/2 pages of text, not counting the title page) going into Wiley’s background and discussing what first sale means to the company. Smith makes clear Wiley sees benefits from first sale resale of physical goods, as long as it’s “properly applied” to avoid interference with selling goods cheaply to developing markets.
Smith devotes the majority of his statement to complaining about the Kirtsaeng vs. Wiley decision and its probable impact on the publishing industry.
In educational products, for example, allowing the importation into the U.S. of textbooks produced abroad for an overseas market is not leading to lower costs for students. Instead, publishers have either withdrawn from certain international markets completely or are obliged to work with fewer, more trusted distributors, thus lessening the availability of legitimate versions of their products in underserved foreign markets and reducing the overall number of transactions through which they can recoup their various production and dissemination costs. To prevent arbitrage, some publishers are now only offering their products abroad at higher, non-local prices which students cannot afford.
It also, Smith says, increases piracy as counterfeiters rush in to fill the market vacuum caused by the discontinuation of cheap third-world editions, and causes higher prices in the US as they’re no longer able to cover the cost of separate foreign editions given the loss of the foreign sales revenue. Wiley wants Congress to “clarify” the matter and make unauthorized importation of non-US copies illegal.
Only in the last two pages does Smith go into digital first sale. Not surprisingly, he’s against that, too. Digital copies don’t wear out, he explains, and any DRM-enforced regime is vulnerable to circumvention.
Wiley believes that creating a “digital first sale” would undermine existing businesses and halt the development of new businesses that use licensing to offer consumers an unprecedented variety of ways and price points for accessing and using creative content.
John Ossenmacher, founder and CEO of ReDigi, the digital music resale company currently embroiled in a lawsuit by Capital Records, submitted an 18-page PDF in a very small font. As might be expected, he begins by insisting that first sale should apply universally: “you bought it, you own it.”
Consumers are given the option to “buy” music, movies, and books on their computer screen the buy button looks the same for digital and physical items but in the largely illegible legalese (that no one reads) the rights of ownership are watered down or worse, dissolved all-together for e-books and digital downloads.
Studies show consumers believe that they own what they buy when downloading. Content producers are attempting to take away a fundamental consumer choice by styling what they call a long term lease/license into their less than forthright marketing strategies.
If the consumer wants a lease, and any benefits that might come with it, that’s fine. But ownership has been and should always remain an option as well.
If digital goods make piracy easier, he says, so what? We’ve got laws to deal with that. (Never mind that there’s no way to tell a DRM-cracker is breaking the law if they do it in the privacy of their own home.)
And he has a rebuttal for those who say that first sale only applies to the physical object containing the work, not the work itself:
It is historically apparent that the intent of the law is to have all Copyright goods protected regard of their delivery formats. First sale is not about the medium in which a work is held; it is about the exhaustion of the owner’s rights upon the collection of the first payment in consideration of a sale, or even a transfer of a particular copy without payment. Is a copyright good any more or less protected merely because it is on paper, rather than on tape or on plastic or on a magnetic disk, canvas or parchment? The answer is of course not.
Ossenmacher notes that the financial benefits to permitting resale of digital goods could be immense; the size of the used physical good marketplace dwarfs the size of that for new physical goods. Such a market would “lessen the divide between the haves and the haves-less” by allowing people who couldn’t afford new goods to buy used, and would free up billions of dollars in currently unusable value in locked-down digital goods.
Ossenmacher notes how limited the current options for digital sharing are, and suggests ways in which the laws could be reformed to make digital resale more clearly permissible. He also discusses a 2001 report that advised against permitting digital first sale, holding that the situation has changed enough in the 12 years since that report was issued that its conclusion no longer applies.
He also suggests that the lack of ability to resell digital goods is part of what has accounted for the explosion in digital piracy over the last couple of decades: “Many file sharers have openly stated, ‘Why should I buy it when as soon as I do, the file I purchase has zero economic value?’”
And, by underlining key passages in Title 17, Ossenmacher argues that it should permit digital resale of goods even now. (I suspect that this is also a key component of ReDigi’s defense in the ongoing lawsuit; we’ll just have to see whether the courts agree with him on that.)
The remainder of his testimony consists of a legal background and case analysis, which reads as if it were taken verbatim from a legal filing by ReDigi’s lawyers.
These two filings seem to represent the concerns of both sides of the digital first sale debate in microcosm, even though Wiley devoted far more of its filing to complaining about the Kirtsaeng case. It will be interesting to see how these play out in the courts and Congress. It will also be interesting to see if any of the other testimony offers any significantly different points of view.