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Digital resale restrictions die hard

Posted on Apr 03, 2013 by Andy Harris  | 0 Comments

by Andy Harris

(Photo credit: Fey Ilyas under 2.0 Creative Commons Attribution Licence)

Last year various news sources ran the story that Bruce Willis was going to sue Apple in order that he could leave his digital library of music to his children. Although the authenticity of the story was quickly challenged, it highlighted the way the law treats creative content differently depending on its form. Digital downloads are purchased – but what is being purchased is a licence to use, not ownership.  It is not ‘your’ item in the same way a CD is. You can sell on your CD but licence terms prevent you ‘selling’ on a downloaded digital track.

This issue was raised in the US recently when ReDigi, a start-up that allows for second hand selling of iTunes tracks, was sued by Capitol Records.   ReDigi were keen to make their service as friendly to the record labels as possible. One of the main arguments about second hand sale of digital content is the ease with which the content can be copied.  The seller could easily copy and therefore retain effectively the same product beyond sale: not something which can happen with sales of physical / analogue products.  However ReDigi’s service allowed only for one copy of the track to exist. So the seller would not retain a copy post-sale.  

The Supreme Court in the US had recently handed down a reseller friendly decision about the ‘first sale’ doctrine – although that applied to the re-sale of physical books.  Broadly speaking the first sale doctrine means that the content owners rights are exhausted after the first sale.

It was possible the court in ReDigi might apply a similar approach to digital reselling. However its decision earlier this week held that ReDigi’s service amounted to infringement of copyright. The court’s reason was that the product being sold was copied from the original and copying without permission is infringement.  This was despite ReDigi’s argument that there was only ever one product  in existence – i.e. the seller did not retain a copy post sale.

Although a disappointing result for ReDigi and others looking to engage in second hand sale of digital content, it is extremely unlikely that this is the end of the matter. Firstly, as with the UK and many other jurisdictions, legislation in the US was not implemented with digital distribution of creative content in mind. Another court may therefore apply a different interpretation of how new technology should  be applied to old law.  Secondly, the decision should be seen against a background of both Amazon and Apple applying for patents for online second hand digital product marketplaces.  If players of that size are looking at this area, they are unlikely to be easily put off.

Closer to home a similar issue was considered late last year by the European Court of Justice in Oracle v UsedSoft, where second hand downloaded Oracle licences were being sold.  As with ReDigi, UsedSoft’s system ensured only one copy of the product (licence) was in existence. However in that case the court held that the initial purchase of the licence was a sale and therefore as with the US ‘first sale’ doctrine, UsedSoft were entitled to resell.  The court felt that paying a licence fee for use of a copy of software for an unlimited amount of time was a ‘sale’ despite the existence of licence terms.

Perhaps the US courts will take a similar approach when they consider this issue again which inevitably they will. The stakes are too high for them not too, regardless of whether John McClane is involved or not...

Andy Harris

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