The Digital Death of Copyright's First Sale Doctrine

Republished with permission. Originally posted at Freedom to Tinker

The legal media's attention has been focused this past week on Supreme Court oral arguments in Golan v. Holder, an important copyright case involving the power of Congress to "restore" private rights in creative works that are already in the public domain. In this post, I'd like to focus on an important copyright case that won't be argued in the Supreme Court. On October 3, the Supreme Court declined to review Vernor v. Autodesk, a Ninth Circuit Court of Appeals decision involving the applicability of copyright's first sale doctrine to transactions involving software and other digital information goods.

The first sale doctrine is the provision in copyright law that gives the purchaser of a copy of a copyrighted work the right to sell or otherwise dispose of that copy without the permission of the copyright owner. If there were no first sale doctrine, there would be no free market for used books, CDs, or DVDs, because the copyright owner's right of distribution would reach beyond the first sale, all the way down the stream of commerce. Without the first sale doctrine, movie rental services like Netflix and Redbox wouldn't be able to lend DVDs without authorization from studios, and you wouldn't be able to lend the bestseller you just finished to a friend without authorization from the book's author or publisher. Along with fair use, the first sale doctrine promotes public access to culture and information by functioning as a crucial limit on the right of a copyright owner to control the disposition of a copyrighted work. A world without the first sale doctrine in it is a world I wouldn't want to live in, but it's one that's quickly taking shape, thanks in part to legal decisions like the one in Vernor.

The Ninth Circuit's decision in Vernor significantly erodes the first sale doctrine with respect to software and other mass-licensed digital goods. The plaintiff in the case, Timothy Vernor, bought several copies of an AutoCad software package from a direct customer of the software publisher. Vernor then resold the copies on eBay, only to be accused of having infringed the software publisher's copyrights. He sued, seeking a declaration from the court that his sale of the software on eBay was protected by the first sale doctrine because the software publisher's distribution right was exhausted by its "first sale" of the copies to its direct customer. By Vernor's logic, software should be able to be purchased and resold in the same way that a book can be purchased and resold. Why should the two be treated any differently under copyright law, after all? The buyer of a book owns her copy of the book as personal property, and her ownership of that individual copy does not at all interfere with the author's ownership of the copyright in the work. Once the author places a particular copy of the work into the stream of commerce, the author loses the right to control the fate of that copy; the author retains, however, all of the rights the statute gives her in the copyrighted work itself, including the exclusive right to make and sell new copies of it.

The Copyright Act makes an explicit distinction between ownership of a copy of a copyrighted work--whether that copy is printed on paper or burned onto an optical disk or stored in a computer's memory--and ownership of the copyright in the work. The copy is tangible property owned by the purchaser; the copyrighted work embodied in the copy is intangible property owned by the author. A copy is a copy, the work is the work, and never the twain shall meet. In Timothy Vernor's case, however, the publisher of the AutoCad software argued that it never actually sold the copies Vernor bought, so there was no "first sale" for copyright purposes. Under the software publisher's logic, which the Ninth Circuit adopted in the case, both the copy and the intellectual property embodied in the copy were only licensed, and quite restrictively so, pursuant to the terms of a mass end user license agreement (EULA); nothing was ever sold, despite the retail transaction that put copies of the software into the hands of the initial purchaser, and despite the downstream transaction that put those copies into Timothy Vernor's hands.

Existing copyright case law makes it clear that digital copies of works, even those stored only ephemerally in RAM, are "copies" within the meaning of the Copyright Act. Moreover, the the Copyright Act is clear on its face that there is a difference between ownership of a copy of a work and ownership of the work embodied in the copy. Decisions like the Ninth Circuit's in Vernor v. Autodesk, however, permit copyright owners to conflate the copy and the work to the detriment of consumers in cases involving digital goods. Under Vernor, software copyright owners not only own the work embodied in every copy of a program they sell, they own every copy, too. Consumers are left with both empty pockets and empty hands.

As the transition from physical to streaming or cloud-based digital distribution continues, further divorcing copyrighted works from their traditional tangible embodiments, it will increasingly be the case that consumers do not own the information goods they buy (or, rather, think they've bought). Under the court's decision in Vernor, all a copyright owner has to do to effectively repeal the statutory first sale doctrine is draft a EULA that (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions. Sad to say, it's about as easy as falling off a log.

Please note: Annemarie Bridy on scaling copyright enforcement, via Surprisingly Free, Mercatus Center at George Mason University. This podcast was based on an article recently published by the author in the Vanderbilt Journal of Entertainment and Technology Law via SSRN.