First-Sale Doctrine in Digital Markets

C opyrights are different from other property rights: There is nothing intuitive or inalienable about them. They are not meant to retain all benefits for a single owner, but rather to act as temporary valves as the benefits of ownership flow from one to many, from the private to ultimately the public.

The first-sale doctrine is one of these valves. Take for example Kirtsaeng v. John Wiley & Sons, Inc., on which the Supreme Court will rule this term. Kirtsaeng, a former Cornell student and Thai national, had his family buy cheap textbooks abroad and ship them to the U.S., where he could sell them on eBay. While his exact profits are in dispute, some report Kirtsaeng made $1 million in sales.

The U.S. District Court for the Southern District of New York found Kirtsaeng guilty of copyright infringement and the Court of Appeals for the Second Circuit upheld that decision. Textbook publisher John Wiley argued that the first-sale doctrine did not apply to works made abroad, because U.S. copyright laws should not apply to them. Otherwise, an operation like Kirtsaeng’s would pretty much destroy the publisher’s ability to vary prices in different markets and authorize textbook sales in Thailand for much less than their sales in the U.S. Subsequently, John Wiley was awarded $600,000 in damages.

Predictably, the argument on the other side is “you bought it, you own it.” Yet there is nothing intrinsic to that principle which lends it legitimacy, outside its value in managing a desirable flow of ownership. After all, what is the real function of the first-sale doctrine? Is it to allow buyers to claim a right in the traditional sense of the word? Or is it to allow publishers to reach a wider market by selling to those who might otherwise have not made a purchase at all, but for their expectation to recoup what they had “overpaid” by reselling later at some inconvenience to themselves? If technology makes that inconvenience of reselling immaterial, the substitution effect of the second or third sale becomes too strong.

The new Amazon patent is a great illustration. The patent, filed in 2009 and won in January of this year, allows the transfer of “used” digital e-books, songs, videos, and apps through a personalized data store. Once a copy is sold to a new owner’s store, it is deleted from the original owner’s. Other safeguards may also be added – for example, there may be a limit on how many times a digital copy is moved to another data store or how many downloads can occur before further transfer is blocked.

These safeguards are imperfect because there is no inherent significance to a specific copy. You don’t need that one book you happened upon at your local used bookstore that is in pretty good condition. Any of the “used” e-books online is immediately available – in mint condition, when you want it, wherever you want it. How is that different from a “new” copy online?

In this way, the first-sale doctrine might become a “right” that trumps all other copyrights in digital markets undefined by the physicality of goods.

Joo-Young Rognlie is a 1L at Harvard Law School.

UPDATE: March 22, 2013: The Supreme Court has ruled in favor of allowing sales overseas, with an unusual group of justices dissenting – Justices Ginsburg, Kennedy, and Scalia. Please find the coverage here: http://www.nytimes.com/2013/03/20/business/supreme-court-eases-sale-of-certain-products-abroad.html?hpw