House first sale doctrine hearing: My points of view

Well, that was quite a few articles. I hope you at least read my summaries, and they didn’t put you to sleep. I was impressed by the breadth of viewpoints represented in that sample of testimony. We heard from a major publisher, a company and an interest group lobbying for digital resale, a graphic artist, a media executive, a major library, and more. They all had their own unique viewpoints, and reading all of them really gave me a new appreciation for how complicated first sale is—not just the proposed digital type, but the ordinary physical media type we all take for granted.

Previously in this series:

It was also interesting to see the different first-sale-related topics that concerned everyone. The idea of digital resale was fairly obvious, and I suppose I should have expected Kirtsaeng to be a topic of interest as well given the recent SCOTUS decision. The question of first sale for libraries is one that often blends into the background because people tend to associate first sale with, well, sale, not lending. But it’s good to have that reminder, because first sale is crucial for libraries.

The concern graphic artists had over their licenses was a bit surprising, given that the practice of artists and photographers licensing only specific rights to their work is hardly new—but given that established businesses such as print publishing have seen themselves disrupted by digital, graphic designers are probably right to be worried. And as Lisa Shaftel, the Graphic Artists Guild’s National Advocacy Chair pointed out in a comment, making any changes to first sale would affect all kinds of creative professionals in unintended ways.

Their Points of View

One thing I was struck by was the optimism many of the presenters had, even when their points of view were very different. ReDigi and ORI were just sure that digital resale would unlock great economic riches, unicorns and puppies for everyone, and problems of piracy could be handled with existing law and technology. John Villasenor was positive that consumers would respond better if retailers simply were more obvious about the fact that they were licensing rather than buying a work. (And he seemed to think retailers would be happy to do it if it made consumers happier.) I can’t help thinking some of that optimism might be just a little misplaced.

It was also interesting to see where the points of view were in favor of the two most contentious issues. As far as digital resale went, of those who mentioned it at all, only two were strongly for it, one was in favor of doing something to resolve digital ownership issues but not necessarily resale, one or two expressed general neutrality and wanted the government to keep an eye on things, and the rest were largely against it. But as far as Kirtsaeng was concerned, only one single participant opposed it, and that was the publisher who lost the case in court!

And we shouldn’t forget libraries’ concerns that digital media will make it harder to do their jobs, or the worries of groups like Public Knowledge that the digital revolution is essentially changing the nature of ownership where digital goods are concerned—and even physical goods, as in the case of that textbook publisher who wanted to claw back and destroy its textbooks at the end of the semester.

As far as issues go, I was a little surprised that video game publishers and consumers weren’t represented or discussed much at the hearing. Video games are another highly contentious first sale arena now, what with many game producers creating single-use DLC content for their games that you only get when you buy it new, or else have to pay a premium for when you buy used. They really don’t like the resale market and are out to destroy it by technological means if not by legal means, and that’s a real problem. (And that’s leaving aside the sale and streaming of games via online stores such as Steam, which have the same resale problem as any other pure digital good.)

Now, let me tell you what I think of things after reading all that.

My Points of View

Kirtsaeng: As far as I’m concerned, the Supreme Court got it right. If you buy something that was made legally, no matter where it was made, you have the right to resell it. So whereas it used to be you could import foreign goods for your own use but not legally resell them because you’d be in conflict with the local licensor of those goods, now you can import and resell with impunity. That’s the whole reason DVD and video game manufacturers developed region codes and used DRM to lock out foreign discs (which was then promptly broken via hidden menus by savvy DVD player makers). But you can’t DRM a book. Anyway, you don’t have the God-given right to market segment. If they tried that in the USA instead of internationally, it would be against the Robinson-Patman Act. (“I’m Patman.”)

Then we come to digital media, ownership, and licensing. What a thorny issue. I tend to agree that permitting digital resale would be a really bad idea. We’ve already seen that one basic application of first sale to digital media—library lending—has its problems: public library e-books can be easily cracked, saved, then “checked back in” and kept at the same time. How can they say it wouldn’t be that easy to dupe off your digital content before you resell it? If we’re talking music, all you have to do is burn it to an audio CD.

And suddenly having thousands or millions of identical media you already sold competing with your new stuff at half the price would be devastating for content producers. Some of these resale outfits virtuously claim they will provide the original studio a chunk of the profit, but a few pennies would be poor compensation for the dollars they would have lost from a new sale. And honestly, why would anyone ever buy a “new” digital file if they could buy a bit-for-bit identical “used” one cheaper? (Yes, you can say that the supply of used content would be limited, since you can only resell a given copy once, and not everyone who buys used would have bought new, but that would still take a huge bite out of the potential new market for almost everything.)

Then there are the complaints that “It said ‘buy’! I should own it!” Well, yes, it does say “buy,” mainly because retailers don’t want to confuse the customer. They want his money. And that’s also why Villasenor’s optimism about changing labeling is probably misplaced. Retailers won’t want to do anything that might scare or confuse their customers into not clicking that “buy” button, and renaming it “license” or “lease” or “rent” is Scary/Confusing Enemy #1. Ditto for putting ominous text on the page saying, “You won’t own this, you’re just licensing it.” It would be the digital equivalent of a Surgeon General’s Warning, and probably have to be legally imposed in exactly the same way those were on cigarettes.

To a certain extent, consumers are just going to have to suck it up and get used to the fact that they don’t truly “own” pure digital media, and they never will. Even if it’s provided to them DRM-free, it’s not legally theirs to sell. That being said, it would be nice if the media providers would meet consumers halfway and cede to them some of the non-sale-related benefits of ownership, by providing the content DRM-free so they could back it up, read it on “unsanctioned” hardware, or even “lend” it to friends and family as long as they don’t upload it to Pirate Bay or something. Of course, it’s easy to do that even now thanks to certain software, but it would be nice not to have to break the law to do it.

It would also be nice to see the prices of these media be a good chunk lower than the physical good, to reflect that fact that you’re not going to be able to recoup part of your value by reselling the media when you’re done with it. 99 cent mp3s generally do that. Amazon was really good about doing that with e-books before agency pricing came around, and does it again to a certain extent now. But if the publishers had their way, new-release e-books would cost about the same as a discounted hardcover book, and that’s just silly.

Those content publishers claim that digital goods cost almost the same amount as physical goods to produce, which may be true. But they’re also not going to have to compete with cheaper used versions of themselves the way physical goods do, which means they’ll be bought more frequently. So maybe split the difference between new book and used book cost?

Software licenses are another tricky issue, in part because the licensing aspect wasn’t always there. It used to be that software was sold on disk just like music was sold on CD. When you were done with it, you shoved it all back in the box and sold it to someone else. But as with video games mentioned above, software developers didn’t like that, and they saw the chance to kill off that pesky secondary market. So all of a sudden everything is licensed and nontransferable. Even people who never agreed to or even were able to read the license can run afoul of it (the Autodesk case). How can you even tell, now, whether any given brand new completely shrinkwrapped never-been-touched software box is actually legal to resell?

That isn’t to say that there might not be good reasons for licensing software in some cases—the BSA did have a few valid points where it came to things like including updates. But all too often it seems as though the software companies just don’t want to compete with used goods, and they have the technological and legal means to enforce it.

As for licensing physical goods, like that textbook case? Ugh, don’t even get me started. That just needs to go away. Kill it with fire. There is absolutely no valid reason for trying to “license” a physical good that should be yours to do with as you please after you buy it. Maybe you can legally do it under contract law, but even if you can, you shouldn’t. That’s exactly the kind of end-run around consumer rights that led to the original first sale ruling in the first place.

Conclusion

Anyway, that’s what I think. In the end, more than my particular feeling on any of those issues, I’m more glad than ever that we have first sale, at least on the sort of goods to which it can be validly applied. We couldn’t have libraries without it, and it’s caused a booming secondary market in used goods that lets people purchase goods they otherwise couldn’t afford, and adds consumer confidence in buying new goods because they know they can get a good chunk of value back from reselling them.

But all many publishers can see are the “lost” sales of new goods that result, which is why there are so many attempts to kill off or do an end run around those markets. That’s a first sale issue that needs to be addressed more than any “digital resale” issue. And if the House subcommittee ever invites public comments, I’ll be glad to tell them so.

6 Comments on House first sale doctrine hearing: My points of view

  1. Thanks so much for this indepth view of the situation. I do think from the established publisher point of view that owning a print book should mean it costs at least two times the licensed ebook version when in paperback and three times when in hardcover. That value proposition seems fair to the purchaser, the publisher, and the author to me. And I think that is roughly where the pricing is now. People have been buying software for decades that in fact they are licensing and this is not a Buy button problem. Owning a print photo may seem safer to some than storing a digital photo in the cloud. Consumer choices are always a good outcome.

  2. I’ll join Caleb in thanking you for this article. Caleb’s next to last sentence struck a nerve for me, because from my perspective, owning a print photo is such a risky alternative. Now I’m not one to trust my pictures to the cloud, but having them on a disk at home and a copy on a disk at work seems so much safer to me than having them on photographic paper. But then I saw my family’s photos, documents and possessions destroyed by hurricane Katrina. A few years later a friend had a devastating house fire. Fortunately her life collection of photographs were tightly packed in a closet, and while they came out soaking wet, heat damaged and charred on the edges, most of them could be salvaged. I digitized thousands of them for her and keep a copy at my house so that if disaster strikes again, she will have something left.

    So drm-protected, difficult to back up books leave me cold. I think the publishers are overlooking a much bigger threat than piracy. They are overlooking the millions of books that are in the public domain. I can read everything from doggeral to fine literature for the rest of my life and never have to buy a book, just from Gutenberg. So if publishers want to stay in the business of publishing new works, they need to make their best efforts to get the prices as low as possible. Digital editions are the key because there is no reason in the world why they should be as expensive to produce as printed paper. Like Caleb said, there is a fair value proposition for purchaser, publisher and author in digital.

  3. I am sorry to hear of your loss. That must have been very difficult. My father’s house burned down ten years ago and the fire started in the library. His father and mother were authors and literary people and had many writer friends whose signed first editions were lost in that fire. I will never forget the sense of human futility I felt walking among the waterlogged ashes of old books and photo albums, particularly when stepping on a section of Rackham illustrations from an old children’s book in the collection. The kids looked so happy! Since then, my children and I have been digitizing as much as we can as a backup plan. It is great to have all the options we now have.

  4. If people can’t resell the digital files themselves then we need a law that allows people the right to transfer the license to whomever they want. 90% of the population is going to be using some sort of walled garden hardware device backed up by cloud storage. Anyone with the savvy to crack the DRM or whatever is going to be savvy enough to just get a free copy from wherever. This means that the people who actually pay for these things will mot likely use the “stub hub” style “sell my book to someone else” feature and pay whatever commission that Amazon skims off the top. This will especially work if Amazon can take a commission and the publishers are first saled out of the loop. Amazon can make money indefinitely from the used markets while the original seller will be SOL.

    The major disruptive technology in the book market will be the availability of the Bookz scene. Text is even easier to share and transfer than music. The availability of 99 cent MP3’s is a direct result of piracy. Once anyone and their grandmother can grab a free copy of whatever book they want via a browser the price of the legal options will fall. High speed scanners and OCR are getting better every day.

  5. There’s one thing I’ve always found confusing about all of this. Publishers claim that it costs as much to put out a digital copy of a book as it does a physical copy. That can’t be right, or there wouldn’t be so many self-published digital books out there. Those writers aren’t working with big budgets and aren’t paying large sums each time the book is purchased. In fact, some are making six figures by selling their books for 2.99 each (a young woman did that with her series about trolls, which was then bought by a publisher and rereleased in physical form and at a higher price in digital form). The old “it costs so much” mantra is getting old. Their overhead isn’t from putting the book out, it’s because they’re trying to cover other costs, and make people have to pay more, by claiming it’s just as expensive to put out and expecting us to believe it. Yes, they do advertise and promote far more effectively than self-published writers can, but their overhead either needs to be trimmed or is nowhere near as large as they claim.

  6. From the traditional publishers’ point of view, they are simply branching a work. All the upfront costs of editing, title setup, marketing, and fixed overheads are spread across a hardcover, paperback, and ebook. They must make this case as a way to hold down the ebook royalty. But yes, to simply publish an ebook self-published or via a low-overhead new company such as mine, means the author should receive a larger percentage. We pay authors 80% of the royalty currently for ebooks and 50% for print on demand via the Espresso Book Network. Hope this helps explain the trad publisher point of view. My gut says they will be paying a 40% ebook royalty eventually.

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