Should consumers be allowed to resell digital songs, books, or video games once you’re done with your downloads? If it sounds unlikely, just remember that businesses trafficking in second-hand records and books were once considered controversial before society came to accept them as normal—at least up until the Internet undermined the logic of resale. The next several years should be key to whether a similar industry emerges for digital goods.
The issue came up recently while I was reporting a piece about the future of GameStop, a used video game chain that holds the dubious distinction of being the most-shorted stock in the Standard & Poor’s 500-stock index. One of the reasons for the pessimism is the widespread belief that GameStop will fade away once the industry completes its inevitable transition to digital downloads instead of discs.
Executives at GameStop believe they can change that by inventing a way to sell used version of digital games, and at least one startup is trying to do the same for digital music. But unlike the established economics of secondhand CDs, DVDs, and game discs, the mechanics of selling used digital media are murky at best and not clearly legal. The issue is working its way through the courts and might end up in front of Congress later this year.
The question centers on a part of copyright law known as the first-sale doctrine, an early 20th century provision that prevents rights holders from seeking to stop the sale, trade, or lending of legally acquired property. You can thank first sale for making it legal to run a used record store, found a public library, or lend a DVD to a friend.
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ReDigi makes the same argument for music that GameStop has made when publishers complained about the used video game trade: If people can resell their old media, they will spend the proceeds on new stuff, and everyone ends up better off. By this logic, the unplayed songs in someone’s iTunes library are an untapped hoard of cash waiting to flow into the coffers of record companies.
This is not an argument that has persuaded those who supposedly stand to benefit. A House Judiciary subcommittee held hearings last June on potential reforms to copyright law, and several media companies warned against expanding first-sale doctrine to cover purely digital goods. “Doing so is not only unnecessary, it would radically alter the nature and purpose of the doctrine,” Matthew Glotzer, then a senior vice president of Fox Entertainment Group, told the committee.
The big difference is that digital media items don’t get old. Used books or albums are worth less than new copies because they deteriorate with use, and it takes some effort to pass each copy from person to person. A “used” digital file, though, is exactly as valuable as the original and just as easy to distribute. The U.S. Copyright Office has already recognized that digital goods are fundamentally different from physical ones—first-sale doctrine, it has said, works only because of the specific nature of physical objects.
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A transaction that looks like the sale of digital books or movies is often, in legal terms, a licensing agreement between a copyright holder and an individual user. Sure, downloading a book on a Kindle feels just like buying a paperback in a bookstore. But the digital transaction deviates from an actual sale and often includes restrictions on how the file can be distributed. Public libraries, for one, have complained that the licensing agreements for digital books make it impossible to operate as they have always done with physical copies.
Sherwin Siy, the vice president of legal affairs for digital consumer advocacy group Public Knowledge, thinks that legislators should establish new rules making it clear that transactions that feel like sales—such as those that include clicking a “buy” button—legally result it the actual transfer of ownership. “The most prominent representation of the transaction should hold,” he told the House committee last June.
Link to the rest at Bloomberg