Questions about Digital First Sale and Future Business Model

Some people have predicted that “superdistribution” will be the most common business model sooner or later. Since the digital first sale doctrine has not been approved by the Congress, to avoid of being bound by the traditional first sale doctrine, it is understandable that the digital documents publisher and copyright owners seek the new business model to protect their exclusive right. For example, the e-book publisher, Amazon Kindle, it disclaims the application of first sale doctrine and adopts the e-book licensing models with TPMs of access controls, which means under that business, customers cannot actually owns the digital copies. In other word, the first sale doctrine cannot restrict the copyright owners’ exclusive right to distribute; meanwhile, consumers could violate Copyright Act if they make the further transfer of the copies. Moreover, anybody who breaks the TPMs or circumvents the TPMs could violate the DMCA section 1201. More explicitly, it is “licensing”, not “sold”.

As to the iTunes Music Store, it had created 10 billion dollars market in the past seven years. Apple has adopted the “win-win” business model to provide the DRM-free digital music files and to encourage consumers pay less, and download more. The average price of one song is 0.99 dollars or less. According to Electronic Frontier Foundation (EEF), if most of sixty million Americans who have been downloading music from legal Internet service platform pay $5 monthly downloading music, the market value will grow an additional 3 billion market value in revenue annually. The enormous market value expressly illustrates that the music downloading business has increased drastically. However, as Steve Jobs said, piracy is the big enemy to music industries. Illegal digital files sharing and reproduction by digital dissemination has threatened the copyrighted owners.

Under the current circumstance, there are two issues should be considered in order to discuss the possibility of acceptance of “digital first sale doctrine” in the copyright legal system. Firstly, finding a possible way to reduce and command the piracy activities, which is the most challenging undertaking for the digital transmission industries management. If one downloads a song legally and then share with someone else without deleting original copy or without permission of the copyright owner, it constitutes a piracy, and it cannot apply to first sale doctrine.

Secondly, whether the secondary market is still necessary under the licensing business model of digital transmission transaction should also be considered. The legislative purpose of first sale doctrine is to restrict copyright owners right to distribute after initial authorized sale, and further to activate the secondary market of second hand copies and to create another access for the public to approach the copyrighted documents. If the digital dissemination transaction changes to licensing business model, there may be no room for discussion of digital first sale doctrine. Under the licensing business model, consumers do not own the title of that particular copy. They may not transfer the title of that particular copy or dispose, donate the particular copy to third party. The only right that consumers gain is using the copyrighted item under the licensing agreements. The secondary market could not be created since the consumers are merely the licensee, but not the owners, of the digital copyrighted products. In that case, digital first sale doctrine may be insignificant to the digital transactions world. Specifically, the Nine Circuit actually has blocked the secondary market of software transactions by barring the users resell the software in Vernor v. Autodesk case, whether the software is fixed on the tangible form.