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Tuesday, 23 September 2014

Towards an Electronic Devices Flea Market in the Cloud? YODA says…YES!

U.S. Representative Blake Farenthold (R-TX) announced last week that he has introduced a bill in Congress, the You Own Devices Act (YODA), which would amend Section 109 of the Copyright Act by providing that the first sale doctrine applies to any computer program enabling a machine or another product to operate.  

If YODA is enacted, owners of electronic devices would no longer be barred from selling them by the companies which manufactured the devices, as they claim that the software needed to operate the device was not sold, but licensed to the first buyer. Companies are doing so as they claim copyright ownership in the software.
I Will Fight For Your Right
to Resell Your Electronic Device

However, under §109(a) of the Copyright Act, “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” This is the so-called first sale doctrine, which allow consumers to resell the work they lawfully bought, or rather, the material object in which the copyrighted work is embodied, whether it be a book, a LP (boy, am I THAT old?) or a CD, even though §103(3) of the Copyright Act gives copyright owners the exclusive rights to distribute copies or phonorecords of copyrighted work.

Under YODA, the owner of an electronic device which needs software to operate [are there any devices left which do not need software to operate?] would be entitled “to transfer an authorized copy of the computer program, or the right to obtain such copy, when the owner sells, leases, or otherwise transfers the machine or other product to another person.” This could not be waived by agreement, but the owner of a machine could not retain an unauthorized copy of the computer program after transferring the machine or the product and the copy of the computer program to another person.

YODA would thus allow consumers to resell their digital devices, but also their digital goods, at least if they sell their electronic device, and if they do not retain a copy of the goods.
At the moment, digital goods are out of the scope of the first sale doctrine. The Southern District of New York put a screeching halt last year to the digital music reselling industry, by holding in Capitol Records v. ReDigi that the first sale doctrine does not authorize the lawful owner of a digital music file to resell it, even if only one file exists before or after the transfer.

In that case, ReDigi marketed itself as "the world's first and only online marketplace for digital used music.”  ReDigi's users had first to download its "Media Manager” program, which analyzed users’ computers and built a list of digital music files eligible for sale. Only music bought on iTunes or from another ReDigi user was eligible, while music downloaded from a CD or other file-sharing website was not.  After the list was built, users could upload any of the eligible files to ReDigi's "Cloud Locker" service and were thus no longer available on user’s computers, but users could still stream the music. Media Manager continued to run on users’ computers to check if music had been retained after being sold or uploaded for sale. If any was fund, Media Manager prompted the user to delete the file, and ReDigi suspended the accounts of users who refused to comply.

For the SDNY, this was copyright infringement, not fair use, and such practice was not protected by the first sale defense either. The Court reasoned that, because a digital music file sold on ReDigi  violated the exclusive rights of the copyright owner, it was thus an unlawful reproduction, and, as such, was out of the scope of § 109(a) as it was not "lawfully made under that title."

If enacted, YODA could lead the way to a law expressively granting U.S. consumers the right to resell their digital goods. That, in turn, would create an electronic marketplace for digital goods, such as this one patented last year by Amazon, a flea market in the cloud.


Pedro Malaquias said...

"If enacted, YODA could lead the way to a law expressively granting U.S. consumers the right to resell their digital goods. That, in turn, would create an electronic marketplace for digital goods, such as this one patented last year by Amazon, a flea market in the cloud."

In my opinion, that is too far-fetched. YODA seems a sensible approach to prevent the abuse of right owners. However, it will not pave the way to digital exhaustion. As you explain, YODA only applies 'when the owner sells, leases, or otherwise transfers the machine' (where the copy of the software is).

As such, this proposal does not bring anything new in relation to the typical arguments used against digital exhaustion / first sale doctrine (see US Copyright Office’s 2001 report on the DMCA).

juillet00 said...

Interesting solution. Shouldn't exhaustion for software on a physical support be distinguished from digital content like music and on an intangible support (e.g. originally purchased from iTunes)?

Anonymous said...

Part One: There is an interesting wrinkle buried in juillet00's post.

What are you buying exactly with an iTunes purchase? What is "yours" that you are parting your money for?

Since nothing "physical" is actually shipped, how is it that you actually have anything at the location you physically occupy?

How is it that you can listen to something that "is not there?"

The answer is both more mundane and more explicit than one might at first realize - and I believe will be more readily "available for understanding" as the technology to allow digital printing matures. In essence though, it is a misnomer to say that "intangible" means what it is seemingly intended to mean. the item bought and the item actually transferred are in truth very much tangible - and must be tangible. Digital is tangible. One requires some tangible media for ANY message or any other transfer to occur. These things are not "pshychokinetically" transferred from one location (the vendor source) to the location of the user (the purchase end point). Some THING is indeed purchased - even if that thing is a stream of digital commands, some THING must be used to transfer that THING from one location to another. Sure, this tangible item is fleeting, and yes, this tangible item is not even perceptible to a human without equipment, but that makes the item no less tangible, no less physical and no less real.

Exhaustion theory must be robust enough to handle the THING that is actually the THING in commerce. If the vendor can make money on the initial transaction by selling you a THING called "virtual representation" or "stream of commands" or anything else you want to call the THING that a purchaser purchases, then exhaustion needs to be able to apply to that item. The electronic stream itself is what is exhausted, as that is what is the item of commerce.

The problem of course is at once both more intense and quite separate from the bare concept of exhaustion: the problem is in the EASE of replication (and I would point out that EASE is also a driving factor for the philosophical bent against patent protection for the software arts, but that's a different discussion).

Once the digital stream is said to be exhausted, then the original rights owner loses all REAL control of what happens next. And as anyone in the modern era can tell you, the ability to replicate a digital product means that even one uncontrolled product can eviscerate the market for that product, since perfect (and unlimited) replication is possible for this type of product.

The problem then is a business model problem. Most traditional products are simply too bothersome for the average consumer to replicate on her own, and such a consumer will pay the producer for any additional "copies." But this ASSUMED constant is coming to an end. It is already here for digital products. And as the home printed market emerges, what it means to be a digital product will accelerate the end of the traditional business model.

Those powers that be that exist now - and depend on that business model are not likely to go silently into the night.

How they attempt to hold onto their market power - be it through legal coercive means, or open competition, will be the more interesting focus to be maintained.

In innovation theory speak, Kondratieff waves always include within themselves, the demise of the wave. It is not too difficult to imagine that the kernel of the demise of the digital revolution is the very essence of what enables - and what is the most appealing aspect of - the digital revolution.

Money is made through control - always has been. If the product cannot be controlled, then what? This is at once a question not only for tech, but for econ, for law, for personal values, for all of society.

Conclusion follows…

Anonymous said...


If you will pardon the pun, we have seen (we in the US, at least) the seeds of power in replicating technologies already decided by the Court in the Monsanto v Bowman case. Yes, it can be argued that the Court attempted to limit its holding to the facts of that case (that is, to the replication of a seed), but the logic of the case cannot be limited merely by the attempt to say "don't use this logic on other self-replicable items." Logic itself is NOT constrainable at that level. Logic itself - much like the stream, does not CARE what the stream signifies. Logic itself does not care if the stream is a song, a music video mash-up of cats performing to a compilation of the best hits of the artist formally known as Prince, a digital file for makeup to be printed out with a home printer, or a digital file for a new car. What ever the item is turned into at the receiver is immaterial (as it must be) to what is actually transferred -what is actually sold - what is actually exhausted.

The very upward slope of a Kondratieff wave is what the vendors are profiting from. One cannot - and it is argued, should not - be able to separate the inherent nature of the item sold just because to do so is in the interests of the vendor.

To turn the well-known phrase on its head, "Buyer Beware" becomes "Seller Beware." You want to sell me a digital anything? Then best be aware that you have exhausted your control over that digital anything. Welcome to the new world. Do not be surprised that the old business models do not work so well here.

Marie-Andree Weiss said...

@Pedro True, a law modifying one aspect of the Copyright Act may not necessarily lead to further changes, as it was the case with the Vessel Hull Design Protection Act, which did not lead to protection of fashion designs:

@juillet 00 it is also true that YODA is only concerned about the first sale of the operating software, which is protected by copyright. The Representative who introduced it is only concerned about facilitating the resale of used electronic devices, not digital goods.

But the logic behind YODA could be extended to the digital goods themselves, as there is a trend right now to provide consumers more rights over their digital goods. For instance, Delaware recently enacted a law allowing heirs to access the digital goods of a deceased person:

As of now, it is not possible to divide one’s electronic library among heirs, because of licensing agreements. The need to find a legal solution to this issue may lead to a change to the first sale doctrine.

It is also possible that technology will lead the change, not law. In Redi, the SDNY was not convinced that the technology used by Redi insured that no copy would be retained by the original user. A technology ensuring that a particular digital good is transferred to its new owner without any copy lingering behind may lead to an extension of the first sale doctrine to digital goods.

Some believe that a technology such as Bitcoin will allow such changes; this is an intriguing proposition.

Bitcoin is not considered to be digital money by central banks, but rather to be a digital good. Yet each bitcoin is unique and may be transferred. But ‘mining’ bitcoins takes extensive resources, and so the technology used to mine them could not be used to mine, say, the new Tony Bennett and Lady Gaga album. However, new technologies are created constantly and thus new developments are likely to happen in the digital goods resale department, whether led by YODA or not.

This is why I agree with Anonymous that “digital is tangible” and is a THING. It really struck me when I read about the difficulties faced by many people wanting to bequeath their digital properties. In such as case, it is hard to believe that the person’s ultimate goal is to give a digital good to someone while retaining a copy for personal use!

Anonymous, I truly like your conclusion… Thank you for sharing your opinion here!

Bas said...

I'm just wondering what YODA would actually change?

Just to paraphrase the reasoning in Redigi v Capitol Records:

Section 109(a) still protects a lawful owner’s sale of her “particular” phonorecord, be it a computer hard disk, iPod, or other memory device onto which the file was originally downloaded.

Or does YODA specifically target computer programs?

Marie-Andree Weiss said...

Hello Bas,

In a perfect world, the first sale doctrine should be enough to allow consumers to resell their electronic devices.

However, many electronic device manufacturers refuse to recognize such right, and instead, ask the person who bought the used device to pay additional fees.

Bas said...

Thank you for your response Marie-Andree Weiss.

I'm a EU trained lawyer of the new generation, so I guess I'm kind off spoiled considering the Usedsoft v Oracle case in terms of first sale and the exhaustion of copyright.

I'm just wondering whether the first sale doctrine would preclude these additional fees and supplementary requirements?

Although I realize the situation in the USA and the EU cannot be compared 1:1, I'd at least think that such a fee would be unlawful since it frustrates the proper application of the first sale doctrine.

Marie-Andree Weiss said...

Hello Bas,

Indeed, as under the first sale doctrine, goods, even protected by copyright, can be resold without further compensating the copyright owner. The owners of the copyright in software, but also in digital music/books, are arguing that that consumers are not buying them , but merely licensing them, and thus, no exhaustion of rights by a first sale.

Anonymous said...

What are the parameters that separate a "true" license from a sham license?

I would posit that almost all click-wrap agreements have no intention of being a licensing agreement in the sense that would materially distinguish from a sale in the traditional sense, and are naked attempts to simply get around any exhaustion doctrine.

I would also add that the "sale" or "licensing" (whatever label you want to use) on digital goods does not change the nature of the exchange just because the goods are digital.

In fact, I would posit that a digital transfer should be treated de facto as a sale, as there is far little real hope that the very item transferred would be the exact item ever recovered at the end of any end term of a "true" license. The nature of the transfer makes such a return a nigh impossibility.

Seller beware.

Bas said...

Interesting! I somehow did not fully take the Vernor v Autodesk ruling into consideration. I now remember that digital goods are licensed and not sold in the USA.

Quite interesting though that the CJEU in Usedsoft v Oracle deems the conclusion of a license as an essential and "unavoidable" part of a first sale. At least for licenses with sale like characteristics, e.g. perpetuality.

In this regard German courts deemed additional requirements, such as prior approval for resale as contrary to the first sale doctrine.

I'm really interested how this will develop in the USA in the future.

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