Some comments on the first-sale doctrine in the digital environment
The first-sale doctrine is back in the mind of all IP Lawyer due to last week US Supreme Court judgement on “Kirtsaeng v. John Wiley & Sons“. The judgement states that the first-sale doctrine applies to copies of a copyrighted work lawfully made abroad. As noted in Patently-O, the judgement will certainly have consequences to the exhaustion of rights in the field of patents (and probably in that of trademarks as well).
The week after, another case related with the first sale doctrine was adopted by a District Court in New York: “Capitol Records, LLC v. ReDigi Inc.“. The main issue in this case was whether the licensing of a digital work can be regarded as a “first sale”? On the affirmative, users of digital contents would be able to “sell” the copies of the music-video file or ebooks they do not want to enjoy anymore to third parties. That’s exactly what ReDigi’s business model is about: the have created a software that allow iTunes users to sell their files to third parties at a lower prices (ReDigi, gets a percentage of those sales). Unfortunately for ReDigi, the District Court understood that the first-sale doctrine does not apply when a digital work has been downloaded. The main reason is that the selling of the songs in ReDigi’s service is not just a distribution of the song, but a copy is made in their serves. This reproduction constitute an infringement of Capitol’s copyright.
The Court makes clear that the decision exclusively concerns Redigi 1.0 but not improved versions of the service. It should be recalled that latter versions include technology that enable original copies to be deleted from user’s PCs. As reported by The New York Times, Amazon, Apple and Redigi itself have also obtained or have applied for patent on technology with that purpose. It is to be seen what would the decision be in relation to these improved services. Some authors understands that the outcome would be exactly the same because “Kirtsaeng” has made clear that the first-sale doctrine is only applicable to “sales” of goods, not to “licenses”.
We are not completely sure about that. The Court of Justice of the European Union have already ruled on this issue in relation to computer software. In Judgement of 3 July 2013, C-128/11, “UsedSoft” the Court stated: a) Software licenses are to be considered “sales” for the purpose of Directive 2009/24; b) Even if that software is made available in the Internet, the downloading of copies is to be considered as distribution of the purpose of the Directive; c) As a consequence, the purchase of a software license in the Internet exhausts the right of distribution. Purchases of those licenses are free to “re-sell” them.
The CJUE was very careful on making it clear that its interpretation of the exhaustion of rights principles is applicable to software, but not to other digital content whose exploitation is covered by Directive 2001/29. Furthermore, additional conditions need to be met for the principle to apply: a) when the software license is “resold”, the original copy must be deleted from the computer of the first purchaser; b) when a license if given for the use of the software in more than one computer, the license must be “resold” as a whole. It is not possible to divided the license and to sell copies for different people.
As you can see, the answer is not straightforward: will US courts apply the same solution that the CJUE has given to software to any digital content if original copies are deleted? An affirmative answer would have enormous consequences for the music and book industry. As the New York Times points out, their representatives fear that no-one would want to buy the new release of an ebook when he can get at a reduced price for another user within a few days. But, wouldn’t anyone would like to be the first in getting a copy of a new movie at a higher price, if he knows he can resell it later and recover part of that price? As previously mentioned, some companies have already taken step to position themselves in that probable scenario. Let’s see how the case law develops on this issue in both sides of the Atlantic.