Pending Cases on the "First Sale Doctrine" May Raise More Questions

Two separate cases regarding copyright law's "first sale doctrine" are currently pending in the federal courts and their outcomes will likely have ramifications, some of which may be unexpected, in the global marketplace for the production and distribution of creative content, digital or otherwise.

The "first sale doctrine" is grounded in, Section 109 of the Copyright Act which allows the owner of a copy of a work "to sell or otherwise dispose of" that copy without permission from the copyright owner.Thus, while Section 106 of the Copyright Act grants copyright holders the exclusive right to distribute copies of their works, after those copies are first sold, the copyright holder loses control of subsequent sales.This is how the used book market is able to operate–while the copyright holder of a work (e.g. the author) has the exclusive right to distribute copies of the work in book form, once a book is first sold, the purchaser (and any subsequent purchaser) controls that copy of the book, not the copyright holder.

Somewhat surprisingly, despite the fact that copyrighted works have been distributed in digital form for over a decade, the question of a "digital first sale doctrine" is still being debated and litigated.The latest case–which brings the debate over a "digital first sale doctrine" into sharp relief involves ReDigi, a tech startup that offers users a way to sell legally purchased digital music and buy "pre-owned" music.

When a user seeks to sell her digital music files on ReDigi, the service's software verifies that the music file was legitimately purchased, erases it from the user's hard drive, and then uploads it to ReDigi's servers where it is sold to another user.Therefore, the service merely facilitated a secondary sale of the music files, which was permitted under the "first sale doctrine".

Capitol Records sued claiming that the first sale doctrine does not apply to digital goods because the only way to resell a digital file is to make a copy of the file on the secondary buyer's computer or other device.As Capitol pointed out, the "first sale doctrine" does not trump the copyright holder's exclusive right to make copies of a work.In analogous terms, a purchaser of a book cannot claim that the "first sale doctrine" permits him to photocopy the book, throw out the original and resell the photocopy. This is consistent with the approach the Copyright Office took when in 1998 it recommended against creating a "digital first sale" provision as part of the Digital Millennium Copyright Act.

ReDigi maintains that no copy is created, and even if one was it would be the result of the user's volitional conduct, not ReDigi's (relying on the Second Circuit's oft-cited cloud computing decision in Cartoon Network, which we have analyzed in detail).

A decision on the parties' cross-motions for summary judgment is imminent.However, a ruling that rejects a "digital first sale doctrine" would set up a conflict between US and EU law. As we discussed in July, the European Court of Justice effectively created a "digital first sale" right for used licenses of downloaded software, putting European consumers in a much stronger position than American buyers.This US-European division may grow wider or narrower depending on how future cases, like ReDigi's, turn out.

A pending decision in another case interpreting the scope of the "first sale doctrine" will also have global implications.In late October, the US Supreme Court heard oral arguments in a case that will determine how the first sale doctrine applies to US copyrighted goods that are manufactured abroad.In Kirtsaeng v. John Wiley & Sons, the petitioner bought legitimate copies of Wiley textbooks in Thailand where they are sold for considerably less money, shipped them to the US, and then sold the books for a profit.

The Second Circuit ruled for Wiley, stating that the first sale doctrine was limited to "domestically manufactured goods." In 2010, an equally divided Supreme Court affirmed a Ninth Circuit decision that also concluded the first sale doctrine only applied to goods made in the US.Yet at oral arguments for Kirtsaeng, Justice Breyer addressed the potential problems of such a rule, saying of foreign cars, "They have copyrighted sound systems.They havecopyrighted GPS systems.When people buy them in America, they think they'regoing to be able to resell them… [but under Wiley's reading they could not]without getting the permission of the copyright holder of every item in that car…".All nine justices will weigh in on Kirtsaeng and, based on the 2010 first sale case, a close, 5-4 decision is expected.

We will continue to monitor the development of "digital first sale" case law and are available to answer any questions you might have.