>>First Sale, First Principles

First Sale, First Principles

Prof. Doug Lichtman, UCLA School of Law
April 26, 2010

Copyright law’s first sale doctrine is part of our everyday experience.  College students, for example, routinely purchase textbooks or study aids, use them for a semester, and then sell them to other students who might be taking the same class the following term.  Regular consumers similarly invoke the first sale doctrine on a routine basis, buying and selling previously purchased copyrighted work at used bookstores, on eBay, and in all sorts of other formal and informal transactions.

Framed this way, the first sale doctrine thus seems easy to describe: After the first sale of a particular object that embodies a copyrighted work, the copyright holder’s rights are exhausted, and that embodiment is free to flow in the stream of commerce without any further permission from the author or copyright holder.

But things in the modern world quickly get more complicated.

For instance, what happens if the original buyer agrees by contract not to resell?  Does copyright law preempt such a constraint?  What if the original sale is not a sale at all, but is instead characterized by the parties as a license?  Does that mean that first sale rights never attach?  And what about digital goods?

The first sale doctrine technically works by immunizing purchasers from any liability under Section 106(3), the distribution right.  But to transfer a digital good, a would-be seller needs more protection than that.  The seller needs immunity from Section 106(3) distribution, sure, but he also needs immunity from Section 106(1) reproduction.  Or, put more simply, transferring a digital good typically requires some copying, and the first sale doctrine by its own terms does not immunize copying per se.

Over at the IP Colloquium  this month, we have been thinking hard about the first sale doctrine and its role in the copyright regime.  We are motivated in part by the Redbox litigation, where first sale and antitrust claims are being pressed against several motion picture studios; in part by the upcoming Supreme Court fight, Costco v. Omega, where the Court presumably will clarify exactly when international acts trigger the first sale right; and in part by the fundamental question of why copyright law should ever have taken this step of forcing sellers to allow resale rather than leaving that as a choice, entirely up to them.

Where has that conversation taken me?

For starters, I think there are a handful of plausible stories about good things the first sale doctrine might accomplish.  For instance, without the first sale doctrine, some number of books and other physical resources would rot on the shelves.  The first buyer would read the book, be done with it, but then find it too cumbersome to contact the copyright holder and get permission to resell the book downstream.  First sale thus avoids some possible waste, at least for physical goods, assuming that book buyers would not contract for the rights they need right at the moment of initial purchase.

A second reason to cheer for the rule is that the first sale doctrine plausibly helps to ensure that some copies of the work end up available at low cost.  This is not necessarily true — in the absence of the first sale doctrine, sellers would offer targeted low-priced versions to particular types of customers; with the first sale doctrine that is hard to do, because those customers would turn around and resell more broadly.  That said, it does seem likely that the existence of something like the used book market will over the long run increase the likelihood that any given title will at some point be available at low cost.

A third reason to like the rule is that it plausibly helps preserve work over time.  When a book goes out of print or a publisher goes bankrupt, it’s a good thing that used copies are available out there on eBay, and that they can be sold without some complicated negotiation between the seller and (say) some now-defunct copyright holder.

A fourth reason to favor the first sale doctrine is privacy.  The intuition here is that the first sale doctrine allows books to change hands many times; so, if I want to buy some scandalous text— say, Bill Patry’s over-the-top Moral Panics — I don’t have to reveal myself by buying it from one particular source.  I can wait and pick it up more quietly on resale, without the original publisher ever knowing that I was the ultimate buyer.

So, I get it: There are some stories about good things the first sale doctrine might do.  And those stories are all the more appealing because, in many instances, small-scale, consumer-side invocations of the first sale doctrine don’t hurt copyright holders all that much.  If a textbook publisher knows that student buyers are going to resell their book a few times, for example, the publisher can make up much of the difference by raising the initial sale price accordingly.

Moreover, in certain settings, small-scale resale, rental, and the like might even be a boon for the copyright holder.  The company that publishes People magazine, for instance, probably loves the fact that individuals purchase the magazine and then quietly share with a few friends or family members.  The extra circulation is good for the magazine because more people see the ads; and any lost sales revenue is probably fully offset by cost savings.  After all, to deliver one copy of the magazine to each separate reader would have required that someone print and deliver all those extra copies.

I don’t want to oversell this point.  There clearly are settings where even small-scale, consumer-side resale does hurt copyright holders.  But often, in these sorts of examples, we can have our cake and eat it too.  Copyright law can champion the up-beat public policies that I sketch above, and it can do so without much undermining the incentive to create and disseminate original work.

I jump off the ship, however, when the context switches from small-scale, consumer-side interactions to business settings — like where a book publisher sells books to a retailer, who in turn will then sell them to individual consumers.  In those examples, none of the above public policy stories work.  Is there a transaction cost problem relevant to the wholesale/retail relationship?   No way.  If Penguin Press sells 100’s of books to Amazon, and Amazon ends up unable to sell them to customers, Penguin and Amazon surely have in place a contract that talks about what happens to the books, specifies who foots the bill, and efficiently recaptures the rotting resource.

Similarly, it’s one thing to say that a small-scale used book market is a good thing because it helps make books more accessible, but do we really mean to trump Penguin’s ability to set or influence the price that Amazon charges for Penguin’s own books?  If Penguin were selling books directly on the Penguin website, there’s no question that Penguin would set the price.  What logic supports a different outcome just because Amazon is in the picture?

My concerns here are amplified even further when one considers how these same issues play out under modern antitrust law.  Put bluntly, modern antitrust law is fully inconsistent with a broad reading of the first sale doctrine.  That is, for non-copyrighted work like shampoo, firms today are very much free to tell their downstream partners not to sell, where to sell, how to sell, and so on.  So, whereas copyright law’s first sale doctrine limits a copyright holder’s influence over copyrighted material downstream, antitrust law more generally would allow sellers to wield all sorts of influence in these so-called vertical relationships.

It wasn’t always this way.  Antitrust law used to look at vertical restrictions with exactly the same skepticism we see inherent in copyright law’s first sale doctrine.  But, as I’ll say more about next time, antitrust law has evolved significantly away from that blanket prohibition, yet copyright law has not.

By |2018-06-05T11:26:37+00:00April 26th, 2010|Intellectual Property Issues|Comments Off on First Sale, First Principles